The first big bull market: From 1861 to 1865, the price of gold rose by 250% to 300%.
For a long period of time in history, due to the existence of the gold standard system, gold price fluctuations have been relatively small. Until 1862.
In 1862, the U.S. Congress passed the Legal Tender Act, which required the then Secretary of the Treasury to issue $150 million in non-cash able (not convertible into gold or silver) “green banknotes” supported purely by the credit of the federal government. In the three years from 1862 to 1864, in order to pay for war costs, the Lincoln government issued three “green notes” with a total amount of up to 450 million U.S. dollars, accounting for almost half of the total money supply during the Civil War. Since then, the US dollar began to have legal paper money.
Since there is no legal relationship between the “green banknotes” and gold, it is equivalent to the United States having abandoned the gold standard at this time.
With the rapid start of the US dollar banknote printing machine, the price of the US dollar inevitably depreciated. At that time, the British pound, the United States’ main trading partner, was pegged to gold. At the beginning of the American Civil War, 1 pound of gold was worth $4.86. In 1865, 1 pound of gold was worth $12.
The second big bull market: From 1968 to 1980, the price of gold rose by 2400%.
After World War II, the Bretton Woods system established the dollar-based world currency system. That is, the U.S. dollar is pegged to gold, 35 U.S. dollars to 1 ounce of gold, and the currencies of other member countries are pegged to the U.S. dollar. Countries can purchase gold from the United States at a price of 35 U.S. dollars per ounce.
But facts have proved that it is unrealistic to have a long-term fixed price ratio between a country’s currency and gold.
After World War II, in order to aid European countries and other reasons, the US dollar began to import US dollars into many regions of the world. By the 1960s, Europe even fell into the “dollar disaster”. The United States is inevitably plunged into inflation. At that time, governments and all parties in the market expected that the U.S. dollar was about to depreciate sharply, so in order to avoid the U.S. dollar crisis and the need for wealth preservation, they threw U.S. dollars to the United States for gold. On August 15, 1971, the United States government announced that it would abandon the policy of exchanging gold at a fixed price for US dollars. The price of gold entered a period of free floating pricing by the market, and the Bretton Woods international monetary system completely collapsed.
At the same time, more obvious inflation has occurred in all countries in the world, and the price of gold has skyrocketed. In October 1975, the US inflation rate exceeded 12%, and gold became a powerful tool to combat inflation.
On January 23, 1980, the price of gold had risen to US$850 per ounce.Unfortunately, the good times did not last long. Since February 1, 1980, the price of gold has been falling all the way. With the new economic growth momentum brought by the information industry revolution, gold entered a long downward cycle until the eve of the millennium.
The third big bull market: From 1999 to 2011, the price of gold rose by 760%.
In September 1999, in order to prevent the price of gold from falling sharply, the European Central Bank and 14 European countries signed a central bank gold sales agreement. The general idea is to stipulate that central banks of various countries sell gold in batches and limited quantities in the next five years. A major factor in the decline of gold has disappeared.
In 2000, the US Internet bubble burst.In 2001, the US 9/11 incident broke out and risk aversion intensified. Gold rose to US$330 per ounce.In 2003, when the Iraq War broke out, gold rose to about $400 per ounce. This was followed by a well-known “water release” period in American history. Credit easing at this stage was an unshakable responsibility for the “subprime mortgage crisis”.
In 2007, the US real estate bubble burst and the 2008 subprime mortgage crisis intensified. In November 2008, the US government launched the first round of quantitative easing. Affected by this incident and the Greek debt crisis, the price of gold stood at US$1386 per ounce.
In August 2011, Standard & Poor’s announced that it would downgrade the US sovereign credit rating from AAA to AA+. The price of gold rose accordingly, rising to $1920 in 20 trading days.
It can be seen from this that the historical factors for the sharp rise in the price of gold include the change of the currency system, the inflation of major national economies, and the surge in risk aversion caused by events such as wars. US$2042 per ounce is a new historical breakthrough for gold, but will the price of gold continue to break through history? How long can this upward trend continue.