Gold Prices Begin to Fall - Economist Anand Srinivasan Explains the Real Reason Behind the 70% Decline in History
As gold prices begin to decline, many are wondering how much further the price of gold will drop. Interestingly, economist Anand Srinivasan has explained that gold prices have historically fallen in a particular pattern, highlighting the economic reasons behind such movements.
Gold prices, which had been rising sharply since the beginning of this year, have started to stabilize in recent weeks. Though prices have dropped slightly over the past couple of weeks, no major upward movement has been seen. While this has brought relief to many, it has also sparked uncertainty among buyers about whether to purchase now or wait for a further decline.
Historical Background
Explaining this, Anand Srinivasan said on his YouTube channel:
“From 1951 to 1970, the currency value remained stable. During this period, global trade was conducted in US dollars, and the dollar was linked to gold at a fixed rate - one ounce of gold was worth $36. If someone gave $36, the United States was obliged to provide one ounce of gold in return.”
However, this system changed dramatically in 1971, when then US President Richard Nixon announced that the US would no longer exchange dollars for gold. From that point, gold prices began to surge - rising from $36 per ounce in 1971 to $800 by 1980.
Oil and Dollar Connection
Later, the US made an agreement with Middle Eastern countries, ensuring that crude oil would only be traded in US dollars. This policy strengthened the dollar’s global dominance. However, when restrictions were placed on oil production in 1973, crude oil prices soared, leading to high inflation in the US.
Drastic Interest Rate Hike
By 1980, due to inflation and factors such as the Vietnam War, the US Federal Reserve - under chairman Paul Volcker, appointed by then-President Jimmy Carter - decided to raise interest rates sharply to control inflation.
“At that time, the US interest rate was around 4%. Volcker increased it to an astonishing 20%. As a result, gold prices, which had reached $800 per ounce, plummeted to $200, marking a 70% decline,” Anand explained.
Why It Happened
He added,
“When more money is printed without an increase in gold reserves, the value of the dollar decreases, and gold prices rise. But when interest rates are raised, money circulation decreases, the dollar strengthens, and gold prices fall.”
Can It Happen Again?
After 1980, the US gradually reduced interest rates and began printing more money, eventually bringing rates down to near zero by 202000. Since then, gold prices have continued to rise.
Anand Srinivasan concluded,
“Historically, gold prices in rupee terms have only fallen by 7–8%, and never by more than 10%. While a similar large-scale decline occurred once in history, it would be extremely difficult for the US to raise interest rates to such high levels again.”
Key Takeaway:
Gold prices may fluctuate in the short term, but a massive 70% fall like in the 1980s is unlikely to repeat in today’s economic scenario.
