EC Why The Gold Bull Will Run For Years

Gold coins

If we want to make intelligent forecasts and decisions about our future, we need to understand not only where we are today, but also how we got here. So, let's look at previous gold bull markets for some insight on what we might expect from this one.

Gold enjoyed a tremendous bull market in the 1970s. That decade was fraught with geopolitical uncertainty, an oil embargo, and big inflation to name a few. Of course, many of these factors were already in place and building up in the years before, but they came together by the early 1970s.

One of the biggest historical events was when U.S. President Nixon cut the dollar's tie to gold in August 1971. Until then, foreign nations could convert their U.S. dollar holdings to gold upon request. Many began doing so as they saw the U.S. rapidly increase spending, which weakened the U.S. dollar.

Closing the Gold Window

In order to avoid draining its gold reserves, Nixon simply closed the gold window. The currencies of many of the U.S.'s largest trading partners gained strength, and the dollar lost a third of its purchasing power that decade.

Naturally, a rapidly depreciating dollar was great for commodities. Gold, in particular, absolutely soared.

The metal's price began around $35 per ounce, and topped out near $850, producing more than 2,300% return!

New Millennium, New Gold Bull Market

By 2001, the more than two-decade-long stock bull market culminated in a popping tech bubble. At the time, gold had been in a multi-year bear market and finally bottomed in April 2001 at around $260.

It then began climbing steadily, though with some important corrections. In 2008 the mortgage crisis morphed into the financial crisis, with the demise of investment bank Lehman Bros., and stocks crashed that fall. Gold dropped $250 over several months as investors cashed in assets to meet margin calls. But gold quickly recuperated, going on to set new highs, and eventually a record high above $1,900 in 2011.

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Linda Willis 4 weeks ago Member's comment

Excellent historical summation here. I think gold has lots of room to go. People should be piling into gold even more during this pandemic. Why people are clamoring for Bitcoin and other volatile currencies instead is beyond me.

Michele Grant 4 weeks ago Member's comment

I couldn't agree more Linda Willis. Bitcoin skyrockets, then takes a nose dive over and over again. It's unregulated, susceptible to hacking, and is being scrutinized by the SEC. Unless you are a criminal, I just don't understand the appeal. The risk is unlike anything else I've seen.

Beating Buffett 1 month ago Member's comment

Great food for thought.