INTRODUCTION

The following will be at least a three part study of Gold Bullion Prices, Past and Present, and how they compare to the collector Certified Gold Coin Market.

The first Three Parts will be devoted primarily to historical gold bullion nominal prices, compared to the recent past, and what are the driving forces behind the market.  After you have read all three, to be completed no later than January 2008, I hope you will gain as much as I have gained from doing the research.

PART I

The Golden Bulls

1978-1980 Compared to 2005-2007

In Part I, we will learn there were no significant changes in gold prices until 1973, and gold has experienced only two significant Bull Markets, beginning 1978 and 2005 respectively. 

A Brief History

Before we get into the birth of The Golden Bulls, I thought we should look at a brief history of gold prices after FDRoosevelt's confiscation and grand meltdown of 1933.  Incidentally, the "hoarders" who got caught up in this web were reimbursed less than $21 an ounce for their gold holdings. 

In 1934 the FDR administration established a fixed price for gold of $35 an ounce (which yielded an immediate $14 an ounce profit for the government).   There it remained until the Nixon-Ford administration in 1973.  The US dollar was on a gold standard, similar to the one first adopted in 1900.  In 1973, the dollar was taken off the gold standard.  After all, there was the aftermath of a war of choice to pay for, and even a stronger need for an increase in the money supply.  Now free to float, gold immediately bounced up to about $120 in June-July 1973. 

It wasn't until the beginning of 1975 the US public was allowed to hold gold bullion and bullion coins legally.  For the first time since 1932, the public could buy and sell gold, now at market prices much like any other commodity.  Unfortunately for the US public, it was too late.  Internationally, gold prices were already spiking because of the 1973 Yom Kippur War and the resulting Arab oil embargo.  Gold prices peaked at about $184 month-end in December 1974.

This background tells us two things.  ONE, the history of bullion price ups and downs of any significance began only in the recent past, 1973-1975.  And TWO, the history of crude oil price ups and downs, also of any significance, just happens to be the very same recent past, 1973-1975.

1976-1977

The first really good news for gold (and some bad news for the dollar) actually began quietly in 1977, the first year of the Carter administration.  The year before, 1976, gold prices had dipped about 22% and the Consumer Price Index (CPI) was up less than 6%, the latter the lowest increase since 1972.  By no coincidence, crude oil prices had taken a short breather.  The Yom Kipper War and the Arab embargo were long over.   

Slowly, in 1977 inflationary pressures increased a bit, and gold bullion prices were on the move again.

THE BIRTH OF TWO BULLS

1978 compared to 2005

By 1978, inflationary pressures ticked up 9% above the previous year and gold had recovered all its 1976 losses and then some.  Because of the inflationary pressures, year-end bullion prices escalated even more than the CPI, up 36% by December.*

(*Three Month Moving Averages, December to December)

In 2005 we did not experience inflationary pressures similar to those in 1978, but beginning in 2003, we were in the muddle of another war of choice.  No oil embargoes this time.  However, plans to control oil sources in volatile political areas were in full swing. Plans had been deferred briefly because of the 911 attack.  But once implemented, the plan lacked the military force to control the initial objective, the Iraqi oilfields.  As a result, the first stage of the venture was a failure.  The unintended consequences of this failure were less crude oil production, and the biggest spike in crude oil prices since 1981.

More unintended consequences, we were back in the mode of deficit war financing, now compounded by a weakening dollar in international markets.  The latter, great for US exports, but not great enough to significantly reduce trade imbalances, and certainly not so great for the integrity of the dollar.  The deficits beginning in 2002, the first since 1998, continued to pile on.  

As demonstrated in the 1978-2005 chart below, the birth of The Golden Bulls began at the end of both the 1978 and 2005 years.  Both years experienced similar fundamental changes, with escalating crude oil prices a common theme, but it was only the beginning.

The Floating Bar Charts

All progressions are based on a three month moving averages of the month-end and monthly low prices, the latter the bar bottoms.

2005 (Black Bars) Compared To 1978 (White Bars)

copyright2009thmxs

Though too fuzzy to read, you will receive a legible  excel download if you subscribe to the Double Eagle price comparisons currently being offered on eBay.   

   Updates of Parts II and III will be prepared shortly.  Meanwhile, thank you for your "Yes" below.          thmxs01/14/2009