MUST READ: Sunday Gold Fix – The Gold Crash ’75

The 1975 Gold Crash

(Alhambra Partners): Thus the recent gold price crash was met largely with glee and gloating among the professional economist cohort as evidence of central bank success in not only initiating “normal” financial conditions but refutation of monetary critics.  For this view, gold prices in 2013 represent the same as gold prices in the 1970-80 time period.

…If this view is correct, then we should expect, as economists do, a further crash in gold prices and another Great “Moderation” in the domestic and global economy. However, as I have noted previously, there are numerous other examples of gold price volatility that have failed to result in “moderate” economic conditions and stability in the monetary arena.

Surprisingly, gold prices hit their peak $197.50 (London AM fix) on December 30, 1974, and quickly reversed. While the release of gold prohibition should have been positive for gold prices with the opening of new potential demand, there were additional factors.

ABOOK-Apr-2013-Gold-1975-crash-detail

As part of the de-emphasis of gold in the official policy, US Treasury Secretary William Simon announced Treasury’s intentions to auction at least 2 million ounces in 1975. The first auction on January 6, 1975, had offered 2 million ounces, but only received demand for 754,000. Not only was there additional supply coming into the market, expected demand had not materialized, keeping gold prices under pressure.

READ REST OF THE ARTICLE & SEE MORE CHARTS :  Sunday Gold Fix – The Gold Crash ’75

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(this article was brought to my attention by member Sinuhe)

I highly recommend this article as it shows the desperation of the IMF and Central Banks to sell gold into the market during 1975-76 to stem the huge rise of the price of gold from $35 in 1970 to $200 in 1974.  Their actions did bring about a 50% decline in the price of gold, but after the price of gold bottomed in Aug. 1976 at $100, it rose to $850 just 3 years later.

The author of the article details the IMF & Central Bank interventions throughout the 1970-80 period.  Nothing has changed today.  Matter-a-fact, the situation is even worse as gold has been looted from allocated accounts and central banks by leasing and most of the gold is heading out of the West and into the East.

We are going to see much higher gold and silver prices when Central Bank manipulation no longer works…. the same way it didn’t work after Aug. 1976.

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18 Comments on "MUST READ: Sunday Gold Fix – The Gold Crash ’75"

  1. Wouldn’t the introduction of gold futures in 1975 also have had a big impact on the gold price?

  2. $gold:$wtic filled that huge breakaway gap from May 2011 today. I’d wager a bunch of princes scarfed quite a bit of shiny this cycle.

    • you mean gold/wti ratio filled gap? do you have a chart?

      silver hedgers have reduced shorts on the shanghai futures exchange too. it is the speculators who are chasing the downside move now.

  3. I am waiting for one of the big banks to come out and say “uhhhh we just lost a whole bunch of money on a highly levered trade that went bad on us.” (Bernanke slaps his forehead in disgust) So much for that AAA rating we just got back from the S&P.

  4. Is it a bottom? Correction of gold (from top): 33% Silver:60%. Very interesting.

  5. Thx for that one Rocco, needed that. Keeps it all in perspective. These are monumental forces at work here.

  6. Robert Happek | June 20, 2013 at 10:00 pm |

    There are two kinds of gold buyers: Those who like gold and those who like Dollars. Those who like Dollars buy gold as a means to increase their Dollar holdings. If the price of gold goes up these people will buy gold not because they like gold, no, they buy gold because they hope gold will go up in price even more so they can buy low and sell high. Once the trend of gold prices stops rising, these people lose interest in gold and start selling their positions. They move on to more promising pastures. The idea is that any financial asset (including gold) is only a trading vehicle as a means to earn Dollars without work.

    Contrast that to those people who buy gold because they like gold. These buyers likely do not buy gold in order to sell it at higher prices. These people buy it in order to keep it. Indeed, the ultimate purpose of mining and refining gold is the accumulation of this metal. Think about it: Since the beginning of time, roughly 170,000 tons of gold were mined and refined (likely more). Since gold is not being used for anything useful (except jewelery), all of that gold is being held by somebody. Half of the gold is held by women in form of jewelery. Roughly twenty percent of the gold is held by central banks and other government agencies. Another twenty percent is held by investors in form of coins and bars. The remaining 10 percent is not precisely accounted for (perhaps dentistry, watches, electronics and other industrial usage).

    The main point I wish to make is: Regardless of the fluctuations in the price of gold, somebody has to hold all that gold at every point in time. What happens over time is only a change in the composition of the people holding all gold. I suspect that the dramatic changes in the price of gold have a very small impact on the composition of the people and institutions holding gold.

    To sum up: If you like gold, you welcome lower prices as lower prices offer the opportunity to accumulate more gold in your life. Higher prices of gold are not welcomed by true gold investors as rising gold prices reduce the amount of gold which can be acquired over time.

    If you like higher prices of gold, this means that you buy with the intention to sell at one point in time which means that you really prefer Dollars to gold. Then you are not a gold investor. You are just a regular financial speculator trying to be sophisticated.

    It is that simple. All the other explanations of falling gold prices are just noise. Prices are pieces of information. As we know from basic information theory, every information is embedded in noise. Gold prices are not an exception.

  7. silver inventory at shanghai futures exchange is down another 20 tons today. total inventory stands at 670 tons, roughly 50% off the peak from March!

    i’m wondering where all that silver went? probably exported.

  8. an observation from shanghai gold futures.
    today, in asia hours, gold Dec. futures was limit down(-5%) at open, at 255 RMB/gram. but gold price rebounded and dec. gold futures closed the day at 262 RMB/gram.

    i mention this, because due to RMB appreciation, this 250RMB/gram level already corresponds to the 1150 dollar/ounce level seen at nov. 2009.

    i know quite a few people are forecasting sub-1200 target for gold:
    1920-400=1520
    1520-400=1120

    but, from RMB perspective, it ready got to 1150 level today and 250RMB/gram has a strong support formation on the chart.

    i maybe hope the best since i’m long. but i’ll continue to watch this 250RMB/gram level. if this goes away, i think we’ll see this 1150 level in dollar terms.

    gold had a 1268 low and silver had a 19.3 low today, already ridiculously low.

    god bless us all!

  9. chinese media has turned against gold too talking about gold making new low and risk of making new low in the future and throwing out misinformation about cost of gold mining at 800-1000 dollar/ounce.

    i’m wondering whether this has something to do physical gold getting really tight so all governments are driving away retail demand.

    • OutLookingIn | June 22, 2013 at 10:02 pm |

      Their cost of gold mining may very well be what they clain. They are the worlds largest producer and the one cost saving asset they have plenty of, are people. Mining costs vary throughout the world by a large amount, depending upon circumstances.

      The Chinese media is tightly controlled by the central party leadership. To make a blanket statement that the media is “against gold” is disingenuine. The core theme has been and still is the purchasing of gold, along with now, silver.

      This latest beat down of the gold and silver price has spurred another round of increased buying at the retail level. The physical gold supply has been tight for the last quarter and is getting tighter, almost to the point of a force majeuir being declared.

      • dude, i’m chinese and live in shanghai. i can tell the tone of the media is negative on gold, at least not as postive on gold as in 2010.

        i recall when silver reached 45-50 in april 2011, chinese media repeated warned about silver bubble. maybe the chinese elites wanted to warn the public about imminent crash.

  10. golden minerals suspended production friday. cde, hl, ssri and others have been losing money since 2nd quarter.
    ssri has so much cash. why can’t it suspend production, or hold back inventory until price rebound?

  11. Great find, Steve.
    In a way the ongoing correction resembles what happened in the mid-seventies.
    But when adjusted for inflation with shadowstats numbers we are way earlier in the cycle. The linked article has various long-term charts of the POG one of them is in 2013 dollars with shadowstats inflation. According to that chart we made maybe half the move that lead to the high of ’74. Moreover, Dow/gold was 3.06 at 12/27/74 while now it is 11.43.
    If you plot a logarithmic chart the slope of the move up from 2001 to 2011 is way less then the slope in 73/74.
    And another thing to consider: Silver stopped at the old high of 1980 while gold more then doubled the high from 1980 nominally.
    In a comparison to the seventies we are way before the correction of ’75.
    Another argument that we are earlier in the bull market is that in the late sixties central banks operated the London Gold Pool and kept the price low while today concentrated selling of paper-gold happens during thin markets. The current practice depresses the price (or the increase of the price over time.) Back then the goldpool broke after France left and for a while there was not a lot of fight against a rising price.
    To compare the known or estimated manipulation then and now is way beyond the scope of a post here, but one difference is fairly obvious: Back then it was way more about pyhsical metal and less paper.
    Another difference is that back then the Hunt brothers tried to corner the silver market; today there is no obvious player trying to do the same.
    in conclusion, we are more in a position of about 1973 then 1975 with way less metal and more money available. This time the driver might be the fear of bail-ins instead of pure inflation on a personal level and monetary war on a governmental level.
    http://goldsilver.com/news/using-shadowstats-inflation-statistics-we-ll-see-that-the-1980-peak-of-850-equals-9-000-today/

  12. the current silver price is more 1972-73ish when silver was 2.5-1.2. gold price is like 1975-1976ish when it went down from 200 to 100.

    silver is lagging gold by one cycle. but in the end, it’ll catch up with gold in the final blow off phase.

    i think this time we do have a very big chance of hyperinflation simply because of the paper money credit ponzi scheme requires bigger and bigger amount of liquidity to sustain itself.

    we’ll see 5 digit gold, 4 digit silver price around 2020.

  13. Today is interesting date from the numerologic view. 24. 6. 2013-6.6.6

    • Date-name: Jan-John
      It looks like, that ponzi-scheme is going to crash. I am very curious what will happen with gold.

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