was minimal conflict and financial instability, there was little demand for gold as an investment alternative or hedge. The opposite was generally true. When the world was experiencing difficulties, especially with economics and financial matters (usually coupled with geopolitical conflict), then gold was popular and its rising price reflected that.
The 1970s bull market
During the second half of the 1970s, gold soared as the world was struggling with financial crises and geopolitical conflicts. Inflation in the United States, for example, was hitting double-digit levels and trying to come out of the recession of 1974–1976 with its companion stock bear market (the Dow Jones Industrial Average had fallen more than 40 percent in that bear market). So investors fled to a reliable safe haven: gold.
Gold was under $200 in the middle of the decade, and it peaked at $850 on January 21, 1980. But new policies brought on by a new president marked the end of this gold bull market.
The 1980s bear market
After Ronald Reagan won the presidency in 1980 in a landslide, he retained as Federal Reserve chairman Paul Volker, who held (fortunately) an austere guidance with the money supply and allowed interest rates to be at a high and painful level (as high as 21 percent at one point), and this austere approach broke the inflationary spiral. The country experienced a recession in 1981, but it was worth it. Coupled with historic tax cuts, the economy rebounded, and the stock market had a strong decade.
The public’s appetite for safe-haven assets declined, which in turn sent gold into an extended bear market. Nimble investors rebalanced their portfolios. They decreased (or removed entirely) their gold-related stocks and assets and switched to assets that would excel with a stronger economy such as stocks.
The 1990s range-bound market
During 1990–1999, gold essentially traded sideways and ended the decade on a bearish note. It started the decade at a hair under $400 per ounce and ended the decade at about $290 per ounce. Although gold had some rallies and corrections along the way and still offered profitable opportunities for both investors and speculators, the 1990s were generally a lackluster time for gold.
Despite this unspectacular activity, the mining industry did well. It successfuly found strong gold deposits in its exploratory activities, and the majors were profitable as they increased the quantity and sales of gold despite the lower market price.
The bull and bear markets of 2000–2008
Now we fast-forward to the 21st century. Stocks started the millennium at unsustainable highs. You may recall the “internet bubble” and the “tech stock bubble.” These deflated on their own, but the next whammy was the terrorist events on September 11, 2001, which sent the markets reeling downward. The public’s appetite for safety returned, and a gold bull market during 2000–2008 saw gold’s price go from $288 (January 2000) to breach the $1,000 level in March 2008 for a gain of 247 percent. It trended lower for 2008 in a modest and relatively brief bear market that lasted mere months (versus years in prior bear markets).
The 2008 financial crisis could, of course, be a whole book all by itself. The stock market and other paper assets (such as mortgages) had a historic crisis and crash. Virtually every major asset was down for the year except the U.S. dollar and gold:
The U.S. dollar was the world’s reserve currency, and it became a safe haven of sorts. Because paper assets and the world’s other currencies declined sharply, investors across the globe fled to financial safety.
Gold started the year at $857 (January 2, 2008) and ended the year at $883.60 for a modest percentage gain of about 3 percent.
Maybe 3 percent doesn’t sound great, but it’s spectacular when you compare it to the broad wreckage of most major investment assets that year. A good example is the hammering of major stocks in the Dow Jones (DJIA) that year. The DJIA started the year at 13,043 and ended 2008 at 8,776 — a brutal decline of 33 percent. Also, gold’s kid brother — I’m talking about silver — had a rough 2008. It was in the far corner sobbing quietly with a loss for the year at 25.6 percent. However, silver’s story gets better, and that narrative is in Chapter 6.
The bull market and bear market of 2008–2018
Fortunately, the shiny seeds of a bull market are usually planted in the muddy dirt of a grim bear market (poetic — you can quote me). Stocks got on the comeback trail in 2009, but gold was ready to roar again, too. The end of 2008 marked the beginning of gold’s second bull market for this millennium. After wallowing under $1,000 during much of the second half of 2008, it got its footing during 2009.
This was the case for gold in 2009. Gold languished under $1,000 during much of the first half of 2009; it came close to cracking the $1,000 level twice but failed. The $1,000 level was “resistance” (a technical analysis term explained in Chapter 15), and gold didn’t finally crack it until September 2009. At that point, the $1,000 level became “support.” Usually, once you soundly break resistance, it can become your new support as the asset keeps moving upward.
With corrections along the way (common with most bull market moves), gold zigzagged its way to a new all-time high. On September 6, 2011, gold hit $1,911.60. For gold, this was a brief visit above the $1,900 level, and its second bull market ended before a long, multiyear bear market and consolidating pattern ending in early 2019.
Making the Case for Gold Today
Welcome back to your current time — uh, the present! And welcome to what is possibly the third and best bull market for gold. I say that because the scale of factors is much greater now than before and certainly greater than the prior two bull markets discussed earlier in this chapter.
