Gold Price in the 1980s

The decade opened at the top. Gold hit $850 per ounce on January 21, 1980, the climax of the 1970s mania, and 1980 still averaged a then-record $615 even after the spike faded. Federal Reserve chairman Paul Volcker's response to inflation, pushing short-term rates toward 20 percent, reversed the trend within months. The average fell to $460 in 1981 and $376 in 1982, when the Latin American debt crisis provided only a brief safe-haven bid.

A 1983 rebound to $424 proved to be the decade's last stand. Averages slid to $361, then $317 in 1985, the decade low, before the Plaza Accord's deliberate weakening of the dollar lifted gold to $368 in 1986 and $447 in 1987, the year of the Black Monday stock crash. The recovery stalled there: gold faded to $381 by 1989 as disinflation held and the Berlin Wall fell, closing a decade in which the metal never seriously threatened its 1980 highs.

The simplest answer is real interest rates. Volcker's Fed raised policy rates far above the inflation rate, so for the first time in a decade investors could earn a strongly positive real return in bonds and deposits. Gold, which pays no yield, went from the obvious inflation refuge to an expensive thing to hold. As inflation fell from double digits toward 4 percent, the crisis premium built up during the Iran hostage crisis and the Soviet invasion of Afghanistan drained away too.

A structurally strong dollar through the first half of the decade compounded the move, since gold is priced in dollars. The result was the first half of a bear market that would ultimately run two decades: see gold in the 1990s for the second half, or the inflation-adjusted gold price table for how deep the real-terms decline went.