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REMEMBER 1979? THAT'S WHERE GOLD PRICES ARE NOW!
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(May 28,1999) Gold touches $267.80 during the day on Wednesday, closes at $269.50 for the day. A twenty-year low price for gold raises the question: What else can you buy today for 1979 prices? Checking the Volkswagen Price Index.
(May 28,1999) Bargain prices in gold always bring out the people who take the opportunity to augment their wealth by converting some assets to gold when it's out-of-favor and making new lows.

So, these days, we're seeing a lot of physical gold buyers we haven't seen in a while. These low levels are bringing in not only new buyers, but also many veteran gold buyers who have been through gold cycles before. One such customer was in this week, who showed us an invoice from 1979. At that time (May 1979) he had purchased a few one-ounce gold Krugerrands for $284 each..

A little history here: in 1979, Jimmy Carter was President, there was a hostage crisis involving American captives in Iran, oil prices were escalating almost weekly, and so were gold and silver prices, in one of the greatest currency panics ever to hit the U.S. dollar. Inflation was nearly 10% and increasing, and the worldwide perception was that the dollar was under siege.

In the twelve turmoil-filled months leading up to January, 1980, gold went from $240 per ounce to $850. My customer who had bought the one-ounce Krugerrands in May of 1979 for $284 each, sold them in January of 1980 for $788 each, not far from the record $850 high reached that month (a price we haven't seen since.)

Now, the point of this is not to tell a those-were-the-days story of the wild and wooly gold markets of the 1970's and 1980's, or to point out how well gold performs in a crisis. No, what we thought interesting was that our customer sold his six one-ounce gold coins in 1980, and took the money and bought himself a brand-new Volkswagen Rabbit, for $4500 cash.

Goods and services were cheaper in dollar terms in 1979. Typical suburban houses in good neighborhoods could be bought for $30,000 to $45,000. A visit to the dentist was $25. Bread was two loaves for $1.00. A fast-food meal was about $1.25, tops.

The point is, nearly everything costs more today, except gold.

Just to find out what a new Volkswagen cost today, we called some local car dealers, pricing the new Volkswagen Beetle. We found out that they're in short supply, and one dealer would take an order for the basic GL 4-cylinder model for $21,500. That seems a little high to us, but there's probably a lot of dealer add-on because of the strong demand. We'd bet the actual list retail price is about $18,000, so let's use that lower figure.

Gold one-ounce coins today cost about $285. Let's do the math.

January, 1980: One new Volkswagen ($4500) = 6 ounces of gold. May, 1999: One new Volkswagen ($18,000) = 63 ounces of gold.


 

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