Gold Price Soars, Surpassing 1980s Peak Even After Adjusting for Inflation

Flow into Safe-Haven Assets Amid Expectations of US Interest Rate Cuts

"Gold Has Played Its Role in Times of Uncertainty"

Gold bars [Photo courtesy of Yonhap News. Reproduction and database prohibited]

Amid global economic uncertainty, gold prices continue their upward trajectory, surpassing previous record highs from 45 years ago even when adjusted for inflation, according to a Bloomberg report on September 12 (local time).

Spot gold prices briefly reached a record high of $3,674.27 per ounce on September 9 at the London Bullion Market Association (LBMA). However, the closing price on September 11 dipped slightly to $3,634.07.

According to Bloomberg, spot gold prices have risen approximately 5% this month alone and nearly 40% year-to-date. The precious metal has broken its all-time high record more than 30 times this year.

Notably, the rally that began at the end of last month has surpassed inflation-adjusted all-time high records, Bloomberg reported. The previous inflation-adjusted record was set on January 21, 1980, at $850, which equates to approximately $3,590 in today's dollars.

The outlet pointed out that this further reinforces gold's centuries-old role as a hedge against rising prices and the depreciation of currency values.

"Gold is a unique asset that has historically played that role for centuries," said Robert Mullin, a portfolio manager at Marathon Resource Advisors. "We've entered a period where asset managers are concerned about the magnitude of deficit spending and question whether central banks truly have the priority and willingness to fight inflation."

US President Donald Trump and Fed Chairman Jerome Powell [Photo courtesy of Yonhap News. Reproduction and database prohibited]

This gold price rally is occurring amidst US President Donald Trump's trade wars with the world, tax cuts, and unprecedented attempts to control the Federal Reserve.

Amid concerns about slowing employment and a potential recession in the US, expectations are rising that the Fed will cut interest rates. Traditionally, lower interest rates increase the relative attractiveness of gold compared to bonds.

In this context, President Trump's all-out offensive against the Fed is heightening concerns that the central bank might aggressively cut interest rates, risking inflation.

Bloomberg noted a similar dynamic unfolded in the early 1970s. At that time, President Richard Nixon pressured the Fed for lower interest rates, leading to a decline in the dollar's value and an oil shock, culminating in gold prices peaking at $850 in January 1980.

This period was characterized by a collapsing currency, soaring prices, and the onset of recession, during which the US struggled.

Furthermore, former President Jimmy Carter froze Iranian assets in response to the Iran US embassy hostage crisis, which caused gold prices to double over two months, eventually reaching $850.

Jim Rogers, a co-founder of Quantum Fund and a renowned commodities investor, commented on the situation at the time: "All countries were accumulating massive debt, printing money, and devaluing their currencies. I could see that gold and silver would be my protection in such times."

However, Bloomberg pointed out that the recent ascent is unfolding much more gradually than the sharp rise and fall of 1980.

This is attributed to increased investor accessibility to the gold market, as well as a more liquid and broader investor base.

Moreover, while central banks downplayed gold throughout the 1990s and 2000s, they are now accumulating it to diversify their foreign exchange reserves as an alternative to the US dollar. This move is intended to secure a shield against sanctions targeting adversaries of the United States.

Indeed, gold prices have nearly doubled since Russia's invasion of Ukraine and the subsequent freezing of Kremlin's foreign assets.

Carmen Reinhart, former Chief Economist at the World Bank, stated, "Gold (the gold price rally) reflects not just a renewed awareness that inflation is still a problem, but also global uncertainty. Gold has always played an important role in times of uncertainty."