There have only been three previous instances in the history of the precious metals when the volatility of their US Dollar pricing has equalled or exceeded what it is now. All three of these previous instances came in the ten years after the beginning of the global "floating currency" era which began in 1973. That era was, in its turn, made inevitable by the severing of the world's reserve currency, the US Dollar, to its last official tie with Gold on August 15, 1971.
The first of these instances came in the aftermath of that August 1971 severing when Gold was set free of the official $US 35 strait jacket which had bound it ever since 1934. By the end of 1974, that $US Gold "price" had become $US 195 - an increase of 457%. Then came the inevitable correction in 1975-76, initiated by the rescinding at the beginning of 1975 of the 32-year old law prohibiting American citizens from owning Gold.
The second instance took place in the period between July 1978, when Gold surpassed the $US 195 highs it had set nearly four years earlier, and January 1980, when it reached what is still its all time high of $US 850. From its August 1976 correction low of $US 102, Gold rose 733%.
The third instance came in the second half of 1982 and early 1983. It came after a period of nearly three years during which OFFICIAL US interest rates were kept at cripplingly high levels - reaching 21.5% at their apex. These high interest rates were a desperate attempt to lure the financial world away from Gold and back to a fiat money system "anchored" by the US Dollar. By mid 1982, the strain proved too much, not for the US itself, but for the Latin American nations which had been the "preferred borrowers" of the huge increase in "liquidity" lent into existance during the first decade of the floating currency era.
In June 1982, Mexico put itself into de-facto bankruptcy by declaring that it could not continue to either service or repay its debts. The choice before the US money-centre banks which had lent the money and the global community of Central Bankers was stark. They could accept the FACT that the Mexican default was proof positive that the global monetary system was financially flawed. To do that, they would have had to accept Gold back into the system as the MONEY in which their currencies could be redeemed. And by doing that, they would have had to foresake the power which their ability to create "money" out of thin air gave to them and to their masters in government.
Their other choice was to bail out the Mexican government so that they could go on servicing their unrepayable loans. To do that, they would have to drag interest rates down by main force and then go about systematically destroying any vestiges of financial and monetary probity which remained in their paper fiat money system.
Needless to say, they decided on the latter choice. The IMF bailed out Mexico in the first of a long line of similar actions. Interest rates were hauled down across the world. The $US Gold price took off, but unlike the two episodes of the 1970s, the paper markets took off too, led by the US stock and bond markets. The bull market in Gold lasted less than eight months, from June 1982 to the end of January 1983 during which Gold spiked from $US 296 to $US 510. The bull market in paper lasted for eighteen years, until the Dow reached its highs in January 2000. Over the period between August 1982 and January 2000, the Dow rose from 776 to 11723 - that's a gain of 1410%.
Now, in April 2006, more than six YEARS after the Dow reached that 11723 high, it presently stands at 11347. That's only 376 points below its high. There has never in the history of markets been a market "top" which lasted for more than SIX YEARS. But neither has there ever been a period in financial history in which the "powers that be" have been so desperate to prevent ANY of their markets from falling. Today, that desperation is rife, because ALL the participants know that a collapse on one paper market will inexorably lead to a collapse in ALL the others.
The past quarter century has been an era of recurring financial bubbles. It could have been nothing else, because there is no substance to the moneys on which the financial system rests. We have lived all this time in a world awash with giant tidal flows of paper "underpinned" by more paper "underpinned" by still more paper but ultimately resting on literally NOTHING. We have lived in a contradiction, a world of "finance" in which there is no MONEY.
In the long run, a contradiction cannot exist. Thirty-five years - 1971 to the present - without money is a very long run indeed. And now, the ever increasing "volatility" of the money metals - Gold and Silver - are shouting from the rooftops that the present contradiction which is the global financial system will not be maintained much longer.
The "volatility" of the $US Gold and Silver price are now reaching the levels that they reached before only in the first decade of the global fiat money system. The "inflationary 1970s" was in FACT by far the least inflationary decade of the past four. 95% of current US Treasury debt has been created since 1971. But 88% of that has been created since the Mexican debt default of 1982. In 1971, TOTAL US Treasury funded debt (amassed over a period of 182 YEARS) was $US 400 Billion. In fiscal 2006, the US Treasury piled up more than $US 400 Billion in debt in less than SIX MONTHS.
The first step to understanding the nature of the present situation is to realise that the INFLATION (the increase in the total stock of money) of the 1970s is a mere trifle in comparison to the inflation of the 1980s, the 1990s, and the 2000s to date. The vast majority of people have yet to take that first step. That's why the rises in Gold and Silver prices are only now beginning to reflect the "volatility" they showed in the 1970s.
On Thursday, April 20, Gold fell $US 12.60 and Silver fell $2.00. On Friday, April 21 Gold rose $US 12.40 and Silver rose $0.44. On April 20, the mainstream press and large parts of the internet were awash with dire warnings that the bull market in precious metals was OVER. One day later, Gold had recouped all its losses and Silver - which had risen far faster than Gold during this period of "increased volatility", had recouped a quarter of its losses.
It is said that Gold and Silver prices are rising in reaction to the rising geo-political tension in the world. It is said that Gold and Silver prices are far above where economic "fundamentals" would place them. It is even said, just as it has been said throughout the current Gold and Silver bull market, that there is no scope for Gold and Silver price rises because there is no "inflation". People trying to preserve a contradiction are prone to the most outlandish statements, and the higher the strain becomes, the more outlandish the claims become.
Some data regarding price rises which appeared in our local paper, The (Brisbane Australia) Courier Mail, may help to put things in perspective. Ironically enough, the period under examination was January 1980 (the month of peak $US precious metals prices) to date. Even more ironically, even though the local $A Gold price has since exceeded the highs it set in January 1980, neither the Gold or Silver prices in either $US or $A was included in the comparison. Here's the list:
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Look at the "price effects" in the first part of this table in comparison with the "price effects" on the precious metals since January 1980. It should be clear that Gold and Silver have only just begun.