Gold price jumps above platinum

For only the ninth time in 43 years, platinum and gold have crossed over, with gold briefly going on top of the price of platinum before the silver-colored metal jumped a tick or two, racing above gold again.

Both settled in at nearly $1,800 an ounce, a clear record for gold and platinum’s most recent previous high.

Platinum went above $1,800 an ounce ($1,813) for the first time on Feb. 6, 2008, and has rarely missed promotional opportunity since. It passed $2,000 an ounce ($2,060) on Feb. 15, 2008. It reached its zenith price on March 4, 2008, when the daily fix listed its price at $2,273.

The year 1968 was critical to gold, for that was the year that the free market for gold was established by a two-tiered system: an official price of $35 an ounce and then a free market price that was determined by the participants in the so-called “London Fix,” which met morning and afternoon, daily.

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In 1968, gold averaged around $38.60 an ounce, platinum under $43.50. For both, it was then a race onward and upward (see chart). Gold moved steadily, if not spectacularly, with declines as well as advances. By 1969, it rose to $41.09, but declined to $35.94 in 1970. In fact, on Jan. 16, 1970, the price of gold went below the official price to $34.95 an ounce. Since then, gold has advanced and never looked back.

By 1971, gold was to average $40.80 for the year; by 1972, it rose to $58.16, and in succeeding years, it looked something like this:

1973 - $97.01

1974 - $159.26

1975 - $161.02

1976 - $124.84

1977 - $147.11

1978 - $193.22

1979 - $306.69

Note: Average Price for year courtesy of Kitco.

Gold jumped to over $800 an ounce on Jan. 15, 1980, and three days later it went to $850 an ounce. The Hunt Brothers position in silver paralleled gold’s experience; it peaked Jan. 17, 1980, at about $48 an ounce.

Platinum at the time of this also went over $1,800 an ounce – before receding.

From 1837 to 1933, with some narrow wartime exceptions, gold had a fixed and guaranteed international value of $20.67 an ounce. That broke down in FDR’s administration when the dollar was devalued by about 60 percent and gold’s price raised to $35 an ounce.

That guaranteed rate was forcibly retained until the late 1960s when gold was set free from a fixed dollar rate in a floating market, and later on Aug. 15 1971, the dollar was again devalued and gold’s price raised to $38 an ounce. A subsequent devaluation to $42.22 an ounce for gold – still the official rate – followed in the Nixon Administration.

Even today, with gold nearing $1,800 an ounce, official U.S. gold reserves are valued at $42.22, while the market price of gold is about 42 times higher.

The price of gold has been less than stable since it was uncoupled from the dollar in 1968, but it has had a stable upward mobility, perhaps in part because when you add the top 20 holders of gold, excluding the International Monetary Fund itself, the U.S. has about a third of the world’s gold (261 million ounces or 8,133 tons. The IMF has 3,217 tons or a little bit over 100 million ounces of the metal).

The events of August 2011 – starting with the near default of the U.S. Treasury on paying interest on the national debt, followed by the Standard & Poors downgrade of the United States credit rating from “AAA” (triple A) to “AA+” (double-A plus) – suggest that the use of precious metals as an asset of last resort is still in its ascendency.

Now, as gold nears the $1,800 Rubicon, which at least one J.P. Morgan Chase economist says will lead to $2,500 an ounce before the end of this year, it appears that the economic world is topsy-turvy.

The American overhang on the market is huge, even when considering its working inventory used for coinage (mostly commemrorative), carefully logged monthly by the Treasury Department:

Department of the Treasury

Financial Management Service

STATUS REPORT OF U.S. TREASURY-OWNED GOLD

July 31, 2011 Fine Troy Ounces Book Value

Gold Bullion: 258,641,851.485, $10,920,427,976.14

Gold Coins, Blanks, Miscellaneous: 2,857,047.831 $120,630,844.95

Total: 261,498,899.316 $11,041,058,821.09

This 261 million-ounce overhang also gives strength to the American economy – for it is a government asset of last resort, too. It also means that at $1,747 an ounce, the real value of American gold reserves exceeds $455 billion.

For hundreds of years, gold has been considered an asset of last resort. That means that in times of desperation, it has made the difference, for some, between life and death. It has outpaced inflation, frequently outstripped other investment vehicles, yet at other times has been a stick in the mud going nowhere. Not anymore.