Price of Gold

Gold’s reputation as a store or standard of value is based upon the historic stability of its price; it was fixed and thus a bench-mark against which other commodities could be judged. ‘Its purchasing power in the middle of the twentieth century was very nearly the same as in the midst of the seventeenth century', noted Professor Roy Jastram, the statistician who analysed the price for his seminal work The Golden Constant.

The classic example of gold’s fixed price was the sterling price set in 1717 at £3.17.10½d per standard troy ounce (this was for 916 gold, equal to a fine gold price of £4.4.11½d per troy ounce) which survived until Britain went off the gold standard in 1931. Within that period of over two hundred years there was little variation in the price except during the Napoleonic wars when the gold standard was suspended briefly and the price reached £5.7.0½d per standard ounce.

Throughout that long period the sterling price was also the international price. But after World War I the US dollar price (then $20.67 an ounce) increasingly became the bench-mark for gold. This was confirmed from 1934 when President Roosevelt raised the price to $35 an ounce, at which level the US Treasury stood ready to buy gold from all comers (and sell to approved central banks). The $35 price was defended until 1968, including massive interventions by the gold pool of central banks. After 1968 gold was left to float free in private market trading, though $35 was preserved for central banks in a short-lived two-tier market.

The London gold market’s fixing also switched in 1968 from a sterling to a dollar price, marking the final acceptance of the dollar as the world-wide quote for gold. But the price itself entered a new era; no longer fixed, no longer stable, fluctuating often in a day more than it had in a century. From $35 in 1968 it was $850 by 1980, by which time no one was sure where it ought to be. It took over a decade to settle down; the average price for the seven years 1990–96 was $372.24, with a low of $343.95 in 1992 and a high of $387.87 in 1996 – a relatively small trading range.

However in 1997 the price dropped into a lower range, averaging only $331.29 that year, followed by $294.09 in 1998, and $278.57 in 1999, a twenty year low reached in the wake of the May announcement by the UK Treasury of its intention to more than halve its gold holdings. Despite a brief rally after the Washington (or European) Agreement on gold was announced in September 1999, the gold price settled down in the narrow trading range of $250-$300. Towards the end of 2001 and moving into 2002, a reduction in the producer hedge book has seen gold move and stay above $300.

Any modern analyst of the gold price must look at its performance in a range of currencies, as well as its dollar price. The price in euros, Swiss francs, yen and rupees (because of high gold consumption in Japan and India), Australian dollars and South African rand (because of their large gold output and the price to the mines in the latter two countries) are of particular interest.