In 1980, the price of gold crested around $850 per ounce. It had risen quite a bit from the official price of $35 per ounce when President Richard Nixon severed the link between gold and the dollar in August 1971.
The price rose from that $35 to around $400 per ounce as of November 1979. That is partly because President Nixon also removed the legal restrictions on US residents owning physical gold, except as jewelry, and because during the 1970s the US economy went to Hell in a hand wagon, increasing the demand for gold ownership to protect people from economic catastrophe. That was similar to what is happening today, when doom and gloomer gold bugs are preaching the gospel of gold.
In early 1980, perhaps due to the Iranian hostage crisis that began in November 1979 and the Soviet invasion of Afghanistan in December 1979, gold peaked to over $800 per ounce.
However, it quickly fell back to around $400. It then entered a two-decade long bear sideways market. Although the gold bugs continued to preach the gospel, and the economy did not begin to improve until 1982, gold didn’t recover for a long time.
Part of the reason, besides lack of demand by investors enjoying the prosperity of the 1980s and 1990s, were sales by central banks, and forward sales by gold producers locking in the price.
However, on September 26, 1999, thanks to the World Gold Council, the European central banks reached the Central Bank Gold Agreement that’s more commonly known as the Washington Agreement.
They committed to help stabilize the market by not selling more gold than the market could absorb without significant income. It was in essence a quote system similar to OPEC agreements.
The Washington Agreement gave gold mining companies assurance they could rely on the market price of gold not going too far down. This encouraged them to increase production, because they had the confidence they could sell their gold at a profit, not below the cost of production as was sometimes happening.
The original quota totally 400 tonnes per year for five years. In 2004 it was renewed to 2008 with the quote raised to 500 tonnes per year.
Owning over 8000 tonnes, the United States did not sign the agreement. However, it says it has no intention of selling any of its inventory of gold. That is also true of Japan.
The International Monetary Fund (IMF) did not sign the Washington Agreement and has sold gold on the market.
The agreement also covered gold leasing and gold derivatives trading. This has helped raise the world price of gold.
The Gold Anti-Trust Action Committee (GATA) charges that world central banks and private sectors have conspired to keep the gold price low, presumably to prop up the world’s fiat currencies and the financial system based on them.