The stock market tanked in August and September; gold barely flinched. Terrorists attacked Paris on Nov. 13; gold declined. Turkey shot down a Russian jet earlier this week; gold fell close to five-year lows.
All year long, gold has been struggling, with seemingly bullish events unable to lift prices for the precious metal. Gold is now down 9% this year and 44% from its all-time highs set in 2011. It seems like nobody cares about gold anymore. What's going on?
Gold Price (2011 to present)
No Impact From Geopolitics & Stocks
It's actually quite easy to understand why gold hasn't reacted to the various headlines that have been in the news. Contrary to popular belief, there is no historical precedent for the yellow metal to rise due to geopolitical events or stock market downturns.
For example, there was no noticeable uptick in gold due to the Sept. 11 terrorist attacks on New York City. Likewise, there was no lasting bullish impact on gold due to the October 1987 stock market crash or the bursting of the tech bubble in the early 2000s.
Rather, gold has tended to take its cues from other factors, which have a much more significant impact on underlying demand for metal.
The First Great Bull Market
One of those factors is quite obvious: inflation.
The classic case of inflation driving gold higher took place four decades ago, when growth in the Consumer Price Index hit double-digit levels in the U.S. in the mid-70s and early-80s. In response, gold skyrocketed from around $100/oz to a then-record $850 between 1976 and 1980 before crashing back down after Fed Chairman Paul Volcker managed to tame inflation by jacking up interest rates.
The 1970s rally in gold was the first of the two great bull markets for the yellow metal since the ending of the Bretton Woods system and the de-linking of gold from the dollar in 1971.