Winkler: Reasons for the fearful to be fearful of gold

The stock market’s dreadful January coincides with a chorus of predictions that the fall of gold has reached bottom from its lofty peak in 2011. Gold is the investment of the fearful, and there’s fear of just about everything from recession to terrorism. Indeed, gold rallied 6.3 percent during the past six weeks.

On casual inspection, it’s easy to conclude that the price of gold has nowhere to go but up after a four-year slide to $1,045 an ounce in December from a record $1,923 — a 46 percent decline measured by futures contracts.

Look harder. Gold has fallen much faster and a lot further before. Between January 1980 and June 1982, for example, the precious metal lost 66 percent of its value, dropping to $298 from $873.

That made sense. The gold price had been driven up by fearsome inflation, which soared to 14.8 percent before receding to 2.5 percent by July, 1983. The yield on the 10-year Treasury note, a reflection of the Federal Reserve’s determination to shore up financial assets, reached 16 percent. As these rates fell back to earth, so did gold. Inflation today is barely visible at 0.7 percent.

Read more: Bloomberg

Matthew Winkler | Courtesy of Matthew Winkler/Twitter

Matthew Winkler is the founding editor and editor-in-chief emeritus of Bloomberg News. He writes about markets.

You can follow Winkler on Twitter at @Matthew_Winkler or find his past work in his archive.





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