4. Gold Rush?

by M. Bourne

Did you know?

gold ingots
Gold ingots

Currencies were based on the Gold Standard right up until the Brenton Woods agreement at the end of World War 2. After that, most currencies were pegged to the US dollar. American gold reserves were severely depleted by France and other countries in the late 1960s. By 1971, President Nixon was forced to devalue the dollar against gold by 15%.


  • This discussion is simplified so we don't get lost in too many complications.
  • The price of gold is changing all the time. Below you will find today's gold price.
  • This site does not provide investment advice.

Tom (see the chapter intro) wants to be financially independent by the time he is 50. He will have to invest wisely to reach that goal. Participating in the current gold rush may be one way to achieve this aim.

Gold has captured people's imagination for hundreds of years. Many fortunes have been made (and lost) as people have chased after gold. There were gold rushes in the US and Australia in the 19th century, resulting in rapid expansion of the population and infrastructure development.

After the Soviets invaded Afghanistan in 1980, there was a large spike in the price of gold to $850 (see chart below). After that frenzy, the price dropped and stayed in the range $250 to $500 for 15 years. But gold is on the way up again - and may be set for a huge increase in the next few years as a result of large imbalances in the global trading system - and America's excessive deficits.

gold chart 1970 to 2010
Gold price in $US - 1969 to late 2010

Notice the increase starting in 2001 - an uptrend is obvious. It may have a lot further to go. See below for an up-to-date yearly chart.

Who Cares?

Australian gold

gold sovereign coin
Gold coin, Australia.

Australia produced 263 tonnes of gold in 2005 and will soon overtake South Africa as the world's largest producer.

There may be an opportunity here to make money. Gold is once again capturing attention as insurance against possible drops in the value of the $US.

Do some research and make up your own mind. Me, I'm happy the way gold is going, as per predictions I read in 2004. Some places you could start to find more information are:

  • http://www.kitco.com (a precious metals research company) The following gold price chart, updated daily, is from them:

[Most Recent Quotes from www.kitco.com]

The Math Behind the Gold Rush

There are many forces acting on the price of gold and I will leave the economists to explain further.

However, one interesting piece of mathematics in the above discussion is the candlestick chart. These charts are commonly used in financial analysis. Read the next section for more.