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4. PartBull Market 1971 – 1980Bear Market 1980 – 2001Bull Market Since 2001

History of Gold

1. On 1st May 1972 the gold price jumped to over US$ 50 per ounce (US$265 inflation adjusted) for the first time after the 1864s Black Friday

2. In the first quarter of 1973 the currency markets had to be closed for fourteen days

3. Thereafter, Bretton Woods was succeeded by a system of flexible conversion rates without any peg to gold and dollar

1. BULL MARKET 1971 – 1980

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1. On 14th May 1973, the gold price broke through the threshold of US$ 100 per ounce (US$ 509 inflation-adjusted)

2. On 14th November 1973, US President Gerald Ford legalized the possession of gold

1. BULL MARKET 1971 – 1980

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1. In 1976, with the Jamaica agreement the IMF eliminated the pegging of gold to the US dollar and accepted managed floating exchange rates

2. Since then currencies are fiat money, not redeemable by gold and theoretically the money supply is infinitely expandable

1. BULL MARKET 1971 – 1980

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1. In the 1970s industrial countries experienced stagflation with strong inflation, weak economic development, low productivity and high unemployment

2. This decade was characterized by high uncertainty in the financial world, the oil crisis, a strong increase of US national debt and money supply and a flight of investors into material assets

1. BULL MARKET 1971 – 1980

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1. In the 1970s the gold price increased 15-fold

2. On 27th December 1979 the gold price reached a new high of over US$ 500 per ounce (US$ 1,552 inflation-adjusted)

3. On 21st January 1980 the gold rate at the New York Commodities Exchange stood at US$ 873 (US$ 2,346 inflation-adjusted)

1. BULL MARKET 1971 – 1980

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1. In 1980 a 20 year-long gold bear market began

2. To end the economic stagnation, the US Treasury, among other things, limited the increase of money supply

3. In the short-term this resulted in a more severe recession and a higher unemployment rate

2. BEAR MARKET 1980 – 2000

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1. In the 1990s, the United States experienced an extended economic upturn (New Economy)

2. In 1994, the New York Commodities Exchange merged with the New York Mercantile Exchange (NYMEX)

3. In 1999 the gold rate in London was at an all-time low of US$ 252,80 (US$ 335,95 inflation-adjusted)

2. BEAR MARKET 1980 – 2000

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1. To regulate the gold sales, and thus the gold price, 15 European nations signed the Central Bank Gold Agreement (CBGA)

2. This regulated how much gold could be sold annually. The limitations were 400 per year or 2000 tons within five years (CBGA1 1999 – 2004)

3. CBGA I was succeeded by CBGA II & III

2. BEAR MARKET 1980 – 2000

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1. Between 1949 and 1982 private possession of gold was prohibited in China

2. The establishment of the Shanghai Gold Exchange in 2002 increased the gold trade und thus also demand for gold

3. Within the next five years, China overtook the United States and became after India the second biggest gold buyer

2. BEAR MARKET 1980 – 2000

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1. Since 2001 the gold price has been risen steadily

2. This increase has a clear correlation with the growth of US national debt and the weakening of the US dollar relative to other currencies

3. In 2005 the gold price reached for the first time since 1987 US$ 500.

3. BULL MARKET FROM 2001

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1. Three years later, in 2008, the rate was at more than US$ 1,000

2. The reasons were the US property crisis and the collapse of subprime mortgages

3. The financial crisis increased the demand for physical gold and exchange traded funds

3. BULL MARKET FROM 2001

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1. The gold reserves of the biggest gold exchange traded fund, SPDR Gold Trust, reached an all-time high in 2010 of 1,320 tons

2. This gold fund controlled more gold than the Chinese National Bank

3. In the same year announced plans to ramp up their gold reserves

3. BULL MARKET FROM 2001

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1. On 7. December 2001, the gold price in New York reached a new record of US$ 1431,60

2. Compared to gold, the US$ experienced an all-time low

3. Reasons were uncertainties about a sustainable economic recovery, increasing inflation, possible corporate insolvencies and defaults of corporate bonds

3. BULL MARKET FROM 2001

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1. Other drivers of demand for gold were growing national debt, low interest rates and an expansion of money supply

2. Another factor was the decrease of gold production by 10 percent since 2001 and strong demand for jewelry and by institutional investors.

3. BULL MARKET FROM 2001

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