Liberal economist Paul Krugman proclaimed earlier this year that “gold is dead.” An Economist article stated that “there is no point in investing in gold, any financial investment is better.” And Warren Buffett, one of the most successful investors of modern times, has never liked gold.
So should we just give up on gold? Is it really a brave new world where modern finances have no need for a barbarous metal? I can understand how one might be tempted to think so, especially with the persistent weakness in price.
There’s just one problem: we've seen this behavior in gold before—and it didn’t last.
Gold’s biggest modern day bull market lasted the full decade of the 1970s. But in the middle of that run, the price fell relentlessly over a 20-month period. From December 30, 1974 to August 25, 1976, gold declined a whopping 47% (based on London PM fix prices).
That had to be tough time for gold investors. The price was in a downward spiral for most of 1975—and then cratered even more in 1976. It just couldn’t seem to catch a break. The downtrend wore on and on, pushing many investors to give up. Most pundits declared gold dead.
Sound familiar? As you’re about to see, there were plenty of negative commentators about gold then, too, all of whom found out not too long afterward just how horribly wrong they were.
I spearheaded this research when I was at Casey Research. At the time I enlisted the help of two local librarians, along with my wife and son, to dig up some quotes on gold from 1976. The process wasn’t easy; publications weren't in digital form yet, so online searches yielded poor results or weren’t sourced properly. Our...