Gold, Oil Prices: A Look Back At January 1980

Includes: GLD, USO
by: Tim Iacono

With gold apparently wanting to take out the 28-year high of $850 per ounce sooner rather than later, a look back at the price of the metal in 1980 is warranted. Aside from the highs that were reached, that period is notable for how little time was spent at those highs.

Originally a business major before switching back to engineering, the memory of discussions during a macro economics class in late 1979 will always stick with me. While there is no recollection of what was said, I do remember the instructor's disbelief as the gold price moved from $200 to $400 and then on toward $600 and $800.

What are economics professors saying today?

That time is remembered for soaring oil prices as well - the hostage crisis in Iran began in November of 1979 and would reach a climax more than a year later. During 1979, black gold had risen from just $15 to $40 - a figure that remains as the inflation-adjusted high-water mark for crude oil that many think will be surpassed in the weeks or months ahead.

The annual rate of inflation reported by the Bureau of Labor Statistics rose from 10 percent in early 1979 to a peak of 14.6 percent in March of 1980 and during that same period, the Fed Funds rate rose from about 10 percent to 20 percent.

Though the oil price began to decline very gradually (still at $35 by the end of 1981) and consumer prices eased (falling below 10 percent again in mid-1981), short-term rates didn't peak until the summer of 1981 when they rose to over 22 percent.

As for the price of gold, on only two occasions did it close at over $800 - at $835 on January 18th and at $850 the following Monday. In fact, it closed at over $700 on only eight occasions ever - six in January and two in February.

This was very much a spike in the the gold price rather than the sustained increase in price that has been seen in recent years. By way of comparison, the closing price for gold has exceeded $700 on 45 days since first breaching that level in May of 2006.

Of course, the most notable difference between 1980 and 2007 is that interest rates were being hiked then - from 10 percent to over 20 percent - and today they are below five percent and being cut.

Oh, and the calculation of "inflation" by the Bureau of Labor Statistics has changed in many very fundamental ways.

I wonder how that's all going to work out.