First of all, I am not a gold bug and like Dennis Gartman, am not very comfortable when everyone becomes bullish on gold. Many analysts and journalists do all sorts of historical analysis for gold prices, looking back at the Q1 1980 high of $800 + (nominal price) and using this number in all sorts of statistical comparison. But what one has to be extremely careful about is the fact that this price was an extreme movement which didn't last for too long at that time. Gold moved above $700 and stayed there for just a couple of weeks before dropping into the $300-500 range (nominal) for most of the '80s. Here is some research I did to explore what caused Gold prices to rise (and subsequently) fall so dramatically in the first 3 months of 1980. It's important to know the history, to figure out if a similar situation could manifest sometime in the future and how to trade such an opportunity.
--- Gold's dramatic rise and fall in 1980 ---
1. Conclusion: CPI and inflation fears set the general trend for gold prices (though they are not always correlated). But a dramatic spike and fall in gold prices were caused due to a combination of extreme geo-political events (Russian invasion of Afghanistan in Dec 1979, Iran hostage crisis) and strong and unconventional policy actions and market events (the Fed under Volcker increased fed funds rate from 13% to 20% for a short period in Q1 1980, and Hunt’s brothers silver market cornering failed due to their inability to meet a margin call during falling silver prices in Mar 1980, exacerbating the fall in precious metals). It is an interesting mix of these events which resulted in the roller coaster gold prices in 1980.
