Gold, silver, platinum, and palladium have each exhibited massive fluctuations in price over the past five decades. However, the savvy precious metals investor may wonder if the price spikes and declines of these four precious metals tell a story.
If you fall into that category, you’ve come to the right place. This blog is a walk-through of the recent events that have affected and continue to affect the price of these metals.
Our hope is that you come away from this blog with some idea of when the next spikes might be coming. Failing that, we hope that you won’t be surprised next time, at least.
Price changes in the value of precious metals like gold, silver, platinum, and palladium are nothing new. Their value has waxed and waned according to their demand, availability, and the state of the overall economy.
However, we entered a new paradigm regarding the price of these metals on August 15, 1971. For all intents and purposes, that date was the birthday of the modern pricing of these commodities.
On that day, President Richard Nixon announced that he had directed US Secretary of the Treasury John Connally to suspend Americans’ ability to convert their dollars into gold. Though its grip on the value of the dollar had already weakened tremendously, this event – which came to be known as the Nixon Shock – finally severed the US from the gold standard and ushered in the era of fiat currency.
Nixon’s aim with this move had been to stabilize the declining value of the dollar. Although it was a politically popular move, it did not have its intended effect. The dollar’s value declined 11% by the end of 1971 and would lose another 10% overnight in February 1973 after the manual manipulation of the currency’s value against those of other nations.
The overall economic situation in the US was further complicated in October 1973. In that month, the Organization of Arab Petroleum Countries (OAPEC) instituted an oil embargo on several countries, including the US, which drove oil prices through the roof. This event came to be known as the First Oil Shock.
So, with all this turmoil and uncertainty – the US and other Western countries entered a recession in 1973 – the effect on the price of precious metals was predictable. By 1974, the prices of gold, silver, and platinum had skyrocketed dramatically, leading to several years of gold sector consolidation.
Incidentally, palladium price charting didn’t begin until 1977, when the first futures were listed on the New York Mercantile Exchange. However, the fourth metal would soon begin to exhibit many of the same tendencies as its brethren.
The next prominent spike in the prices of these four metals occurred in January 1980. Since the spike in 1974, all the metals’ prices had stayed roughly flat. However, 1979 would prove to be a banner year for geopolitical events, and the prices of gold, silver, platinum, and palladium only served as indications of the overall turmoil.
The first major event that affected world economies, world structures, and, importantly, sentiment in the United States was the Iranian Revolution. US-backed Shah Reza Pahlavi left Iran and abandoned his leadership position in January 1979 after roughly a year of growing unrest in the country.
His departure and the subsequent return of exiled Ayatollah Khomeini marked a dramatic escalation in the tensions between Iran and the Western world. In particular, the United States, the United Kingdom, and Israel found themselves the target of much rhetoric and bile from the newly established government. From the American point of view, the revolution reached its peak in November 1979, when protestors overran the US Embassy in Tehran and held dozens of embassy personnel hostage.
Both concurrently with and in part due to the revolution, the world underwent another Oil Shock in the same year. Worldwide oil production dropped 4%, and investors reacted by pumping the price of oil to new heights. In the US, a barrel of oil became 2.5 times more expensive between April 1979 and April 1980.
The upshot, if there was one, is that Americans increasingly turned to gold, silver, platinum, and palladium as stores of value during this period. As a result, prices in the early 1980s quickly rose to heights never seen before.
Gold raced to its then-record of $650 per ounce less than two years after it had been trading at $200. If we adjust for inflation, this price remains at an all-time high, as its equivalent at the present would be gold at almost $2,700 an ounce.
Silver’s rise was even more profound, moving from $5 per ounce in 1978 to a whopping $36 per ounce in January 1980. This price equates to an inflation-adjusted mark of nearly $140 an ounce, more than six times the typical price for an ounce these days.
At the time in 1980, it may have seemed as though Gold et al were entering a new phase of valuation. However, it turned out that all four metals had reached their individual zeniths.
Due to a multivariate series of events, the US entered a period of relative prosperity in the 1980s and 1990s. There were some hiccups, such as the stock market crash in 1987, but overall, the fortunes of America seemed to be on the rise.
Although the correlation isn’t a perfect one or particularly strong, there is nonetheless a relationship between the perceived health of the economy and the demand for precious metals. So, during the period between 1980 and 2000, the prices of gold, silver, platinum, and palladium sank precipitously.
In fact, by 2000, the prices had dwindled back to their pre-1980 levels, by and large. To clarify, these were the prices in real dollars, not inflation-adjusted ones. However, 2001 bore witness to the dawn of a new era in American history – one that remains in effect to this day.
The terrorist attacks of September, 11 shocked Americans to their core about many different issues. There was uncertainty about military actions, nation-building exercises, and threats to our financial and governmental systems.
Investors noticeably began buying gold, silver, platinum, and palladium again during this period. However, whatever negative effects the attacks had on the economy were exacerbated and pushed into overdrive in 2008. The housing crisis and the birth of the Great Recession caused an unbelievable amount of pain and struggle for Americans across the country.
As usual, when we’re in dire straits, we tend to turn to precious metals. So, during the next three years, we pushed the prices of gold and silver to their highest levels since 1980. Platinum and palladium also experienced spikes during this timeframe in 2008 and 2001, respectively. However, we do need to discuss the differences in the causes of these two latter spikes.
There is no question that gold and silver are the primary precious metals that people trade. They have, at times, been on equal footing with currency in the US, and they still hold a vaunted position as stores of value by many Americans.
So, the US prices of gold and silver reflect the overall health of the American economy and the confidence that the American people have in the economic outlook of the near future. If things seem to be going well, we are more willing to stick with dollars and lower our demand for gold and silver in hand.
However, if the consensus is that things are headed in the wrong direction, gold and silver generally experience spikes in their prices as investors look for safe harbors with which to weather the storm. So, periods of great turmoil like the Nixon Shock, the crises of 1980, and the 2001 attacks/2008 recession combo platter yielded spikes in the prices of the two main precious metals.
Now, platinum and palladium don’t exist in a vacuum outside the economy. Their prices do tend to move in similar directions to their more popular precious metal brethren, but the correlation is weaker due to an external element.
That element is the overall supply of platinum and palladium. Unlike gold and silver, which are both common and commonly mined, platinum and palladium are more heavily affected if their major suppliers experience shortages. The demand for these metals doesn’t decrease, of course, so the prices spike in the face of diminishing supply.
Thus, we can now understand why platinum experienced a spike in 2008. Platinum is mined, in no small part, in South Africa, and the South African mines reported supply disruptions in 2008. The result was a price spike that defied the trends of gold and silver.
Palladium’s story in 2001 was quite similar. A late-2000 shortage in Russia, rather than South Africa, caused great instability in confidence about acquiring palladium. In fact, because palladium has industrial uses as well as investment ones, many American companies began hoarding palladium with near-reckless abandon.
When the prices declined quickly in 2002 after Russia sorted out its issues, these same companies were left holding the bag. In one notable example, Ford Motor Company had to declare a $1 billion loss in value due to the price swing.
So, the multi-billion-dollar question is what to make of the current prices of these metals. Let’s talk about the non-gold metals first, as they are all on a similar trajectory now.
Platinum’s high point remains at its peak in 2008. In general, its price has trended downward in recent years, but, at the same time, it is still more than twice as valuable as it was in 2001. Platinum should see a gradual increase in its prices due to demand from several industries. Notably, hybrid cars require portions of platinum to operate. However, there is no indication that supply disruptions are particularly imminent.
Palladium has a different narrative at work due to ongoing tensions and unrest in Russia, one of its primary producers. The instability and delisting of Russian refineries on British exchanges have led to fears that palladium may be much scarcer. The increasing aggressions between the US and Russia are doing nothing to allay those fears, either. So, it’s no surprise that palladium prices reached a new all-time high in 2022, with an ounce of the metal trading for roughly $2,200 at one point.
Prices have fallen off a bit since then, but it’s not as though the problems with Russia are concluded. There’s no reason to assume that palladium has hit its zenith so long as we cannot rely on supplies from the Russians.
Silver prices remain in a sort of holding pattern currently, below their peak in 2011 but much closer to that mark than the depths of the early 2000s. However, silver may be poised for a rally upward again soon due to the trajectory of its sister precious metal, gold. Silver prices tend to mirror their yellow brethren but lag the movement of gold prices.
Gold is at its absolute peak price right now. There has never been a time that the price of an ounce has been higher, although an adjustment for inflation shows that the 1980 spike was bigger than this one.
Part of the driver of gold’s price is the massive increase in the money supply that the government has implemented in the past few years. Gold tends to follow spikes in the amount of currency available, but another money supply measure may tell an even bigger story.
The velocity of the money supply, which is a measure of how much money in circulation is being traded or saved, is extremely low, an indicator of perceived weakness in the economy. In effect, the spike in gold prices due to the incipient inflation that the money supply increase would indicate has been blunted because people are saving their money more than they are spending it.
So, it is entirely possible that the peak price of gold we’re currently seeing is not the ceiling for how high the value may or could go in the next few years. It would be prudent to keep your eyes peeled for the first signs of a new upswing.