Highest Ever Gold Prices in 3 Currencies - Why & Where Next?
October 2009, gold bullion all time highs. Why and where next? Information and opinion.
14th October 2009
& 17th November 2009
2nd Dec 2009

Triple Top
On 24th November 2009, gold hit new record high prices in all three quoted currencies!
On 2nd December, it again hit a triple top
In February 2010, there were 7 new all time highs in euros, and the sterling price came within a whisker of its all time high, even though dollar prices were about $100 below their peak.

Individual Major Currencies First, we have existing pages tracing all-time high gold bullion prices in three major currencies, as follow. It is worth at least a glance at each of these before reading the rest of this page.

• All-Time Dollar Highs
  On the morning London Fix of 7th October 2010, gold fixed at $1,359.50 per troy ounce.
  
• Highest Ever Gold Price in Pounds Sterling
  8th June 2010 £867.45 (a.m.)
• Highest Gold Price in Euros (EUR)
  8th June 2010 P.M. €1,042.94
• Record High in Beijing
  The record price in Chinese Yuan was achieved on Tuesday 4th April 2006, according to the Beijing Daily newspaper, hitting 170 yuan per gram (21.25 dollars).
  

Why?
The reason for all these record high prices is basically the same, the erosion in value of each of the currencies. This has happened to all currencies and monetary systems, ever since the first ones were introduced by the ancient Greeks almost three thousand years ago.
In the old days, money was simply lumps of gold, silver or copper, and its value closely reflected the value of its actual intrinsic metal content. Even then, some money issuers reduced the weight or purity of their money over a period of time, sometimes gold plating or silver plating it to disguise the deception.
Once we switched to paper money (blame the Chinese), this deception or illusion became easier. Inefficient or dishonest rulers and governments could cheat their citizens and taxpayers by printing more money or refusing to redeem it for its original value. Because this is also a method of stealth taxation, it is very popular with many governments. Taxpayers and voters often fail to realise what is happening until it is too late, and by this time there is often a new government left to continue, and perhaps try to clean up the mess left by the previous one.

Counterparty Risk
When you own a banknote, you are relying on the issuer to still to around, and solvent when you come to redeem or spend it. You are also relying in the issuer to maintain its value. The issuer is a counterparty, and you are exposed to counterparty risk.
When you own gold bullion, or silver, or other precious metals, you are exposed to the fluctuations in the bullion markets, but there is no counterparty risk. Even the market price fluctuations are slightly illusory. It could be considered that an ounce of gold is an ounce of gold, and remains the same ounce of gold whatever happens to its value when measured against a fiat (paper) currency. It is actually the value of the paper currency which is fluctuating against the ounce of gold.

The Gold Standard
We expect everybody to have heard of the gold standard. It was a system whereby many countries guaranteed to exchange their paper money for gold at a fixed exchange rate. Even this arrangement includes counterparty risk, because governments could run up deficits then default on their promises to exchange, or devalue by changing the exchange rate.It is difficult to define exact starting dates for "the gold standard" because different countries used it is varying forms over long and periods of time, but for most major western countries it was in use at least from the 18th to the 20th century.
The gold standard came to an effective end between 1931 and 1934 for most countries.

Bretton Woods - The Gold / Dollar Standard
At Bretton Woods in 1944, a new international financial system was hatched. The US government guaranteed it would exchange the US dollar for gold at $35 per ounce, and many other countries adopted a fixed rate of exchange between their own currency and the US dollar.
The have been defaults and devaluations along the way, and the US eventually reneged on its guarantees in 1971, after the French government started to exchange dollars for gold, and the costs of the Vietnam war adversely affected the strength and value of the US dollar.
At first a two tier system operated, whereby governments could exchange at $35, but others could only exchange at $42, but this temporary fudge was always doomed to crumble.
Eventually the US government abandoned all fixed rates between the US dollar and gold; the dollar being left to float, or more correctly, to sink.
By 1980 gold hit its then all time high of $850 on 21st January 1980. This mean the US dollar was worth only 850/35 or 1/24th of its previous value in only 10 years!
What had started as a kind of gold standard had become a dollar standard.

The Dollar Standard
Since 1971, most countries in the world have held most of their reserve currencies in American dollars. This made much sense, as the USA was the wealthiest nation, it was relatively politically stable, and there were few practical alternatives.
Because the US dollar and the US government was now held in a favoured and esteemed position, this has made it easier for US governments to run high levels of deficit, and get away with it. For the past 10 years, we have read analyses and arguments that the US treasury was printing too much money (and we include bonds, and other loans as money), and that its exchange rate was artificially high, too high, and therefore must eventually fall. We believe this has been happening.
The most recent low gold price in US dollars occurred on 20th July 1999 when gold fixed at $252.80 US per ounce. Since then, gold has again risen, this time to over $1,000 per ounce, so against gold, the US dollar is worth less than a quarter of its real value only 10 years ago. Many believe the dollar has much further to fall, and this is a distinct probability. A complete meltdown is also possible and we could yet witness a run on the US dollar.
Similar to the French in 1970, the Chinese have expressed interest in seeing a new international standard reserve currency. Most of China's currency reserves are held in dollars, and if we were the Chinese government, we would be trying to get rid of them in exchange for gold, silver, euros, copper, oil, or almost any hard commodity. We believe this is happening now. Of course the Chinese government will be aware that if they publicise their moves in advance, this may in itself cause panic, and a run on the dollar. Whatever your views on the intelligence of the Chinese government, we do not expect them to be so stupid as to trumpet their moves in advance. Individuals and investors will need to make their own assessments, and trust their own judgements. Certainly we would rather continue to hold gold and silver rather than dollars or pounds for the foreseeable future.

Euros SDRs or What?
The euro is now a major currency, although it is still quite young, and their are well publicised strains within the euro system. The euro therefore will almost certainly be represented among the currency reserves held by many nations.The Chinese have called for a new form of reserve based on the old Special Drawing Right (SDR) system, to be administered by the World Bank or the International Monetary Fund (IMF). This would, hopefully, reduce the role of the US dollar, and spread the risks of default from one major country to a larger number of countries. On the face of it, this seems to be a very simple, but an extremely good idea.
It would also mean the any US government which ran large deficits would be found out more quickly, and do less collateral damage to innocent bystanders.

Gold Silver & Precious Metals
It is quite likely that any International Supercurrency would hold a basket or selection of other currencies as part of its reserves, but it would almost certainly continue to hold a significant proportion of its reserves in gold, and possibly silver.
The private citizen is free, in most civilised countries, to store his own reserves in gold, silver, or other precious metals. In the EU, gold has been officially recognised as an legitimate investment since 1st January 2000, when VAT was removed from "Investment Gold".
A significant part of our business is making a market in gold coins and small bars (up to 1 kilo) for individuals and investors in the UK, EU, and elsewhere.
We try to maintain a neutral stance, and state of mind, when attempting to analyse the market, and make forecasts. We try to simplify this as much as reasonably possible.

Gold Bulls? Most people would probably expect us to enthuse about gold, talk it up, and always recommend it as a good investment and a good buy. We try to be realistic and conservative in our approach. We hope that most of our readers and customers will understand and appreciate this. Sometimes our apparent neutrality causes some investors to postpone or delay their buying decisions. While we regret this, as do most who procrastinate, we would rather maintain our integrity.
On balance, and most of the time, we do remain gold bulls. It was rather frustrating recently. Since gold hit a sterling high of over £690 per ounce on 20th February 2009, it has languished around £570 per ounce between June and August 2009, and we were at the time strongly (for us) suggesting that the drop represented a good buying opportunity, and that the underlying principles above still held good.
We also never cease to wonder why investors lose interest when prices dip off, then rush in once prices have already risen.
It seems to us that many people only buy when prices appear to be going up, when it should be the other way round, prices should start to rise because people have started to buy. Is this a herd mentality? If so, we would encourage any investors to invest some time and effort into thinking about the market, and taking decisive action before the rest of the herd. Be a leader instead of a follower.

Where Next?
Where does it go from here?
Gazing into our crystal ball, we would be surprised if it did not go on to break the all-time high in US dollars before too long.
The 2010 LBMA gold price forecasts have been published, and we comment on them on our page. The average forecast was $1,199 as against $721 for the 2009 forecasts.

Highest Ever Gold Prices in 3 Currencies - USD Euros Sterling GBP Please see our updated version of this page.

Lowest Recent Gold Price

Bull Market? Does the drop after this price peak mean an end to the gold bull market, we believe not, more of a correction.

Highest Historical Silver Bullion Price & Lowest Recent Silver Price
The all-time high price for silver was hit on 18th January 1980 at $49.45 (£21.65) per troy ounce fuelled by Nelson Bunker Hunt's cornering of the market.Silver then hit a post Bunker Hunt low of $3.54750 or £1.83250 per ounce on 25th February 1991.
In late 2010, silver has broken through a 30 year high of $30 per ounce.