Fed Funds Rate Comic

After leaving the Board of Governors, Volcker worked as an investment banker and continued his public service. For example, he worked for the United Nations or chaired Obama’s Economic Recovery Advisory Board.

Volcker and Gold

What was Volcker’s impact on gold? Well, it was technically positive, as gold gained about 50 percent under his tenures, as one can see in the chart below.

Chart 1: Gold prices (London P.M. Fix, in $, monthly averages) under Volcker’s Fed tenures.

Gold prices (London P.M. Fix, in $, monthly averages) under Volcker’s Fed tenures

However, Volcker became the Fed Chair at a time when inflation in the United States was in double-digits. As he described it: “It was the biggest inflation and the most sustained inflation that the United States had ever had.” He is widely credited with curbing that high inflation, slowing the rapid growth of the money supply and allowing interest rates to rise. Indeed, thanks to Volcker’s determination to fight inflation, the CPI annual rate plunged from 14.6 in March 1980 to 2.36 in July 1986. Hence, although the gold prices in August 1987 were higher than in August 1979, the 1980s and 1990s are generally considered to be bearish for gold, partially due to the Volcker’s actions.

Last but not least, Volcker served as undersecretary for international monetary affair in the Treasury Department from 1969 to 1974. We mention this little-known fact, because Volcker was one of the major architects of the United States’ closure of the gold window on August 15th, 1971, which resulted in the collapse of the Bretton Woods system and the final abandonment of the gold standard. So, Greenspan favored the gold standard as young libertarian, just to become the Fed Chair and conduct easy monetary policy, while Volcker helped the U.S. to abandon the gold standard, which released the genie of inflation, just to put it later again into the bottle. Quite funny, don’t you think?

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