The start of the 1980s was a historic time for gold. It hit a record high of $850 in January 1980, which was an unprecedented price. It was an even more dramatic price level because if you adjust it to modern prices, the price is $2200-2550, meaning this was the highest price of gold ever seen.
To some degree, it parallels the patterns seen in 1973-74. There was a very high inflation level of 12.5% in 1980 and 8.5% in 1981. As stated previously, inflation encourages people to invest in gold, with the possibility of forming a bubble. This event is a textbook example of this. Rising oil prices had a part to play in the enormous inflation, since oil is one of the biggest industrial inputs.
There were global political pressures that affected gold. The invasion of Afghanistan by the Soviet Union occurred at this time. Included in this was the Iranian revolution, where Mohammad Reza Shah Pahlavi was ousted aggressively. The Shah had the support of America at the time of the revolution, and the ousting marked the end of over two thousand years of Persian rule.
Since the overthrow was partly backed by leftists, worries increased about communism and its effect on gold prices. Communist societies obviously favor trade far less than capitalist ones. They typically have a similar approach to property rights for that matter. Possibly the most important factor here is that communism appeared to be strongly on the rise. This was yet another reason for western investors to get their hands on gold before it became more difficult to do so.
Just after the beginning of the 1980s, inflation became the biggest enemy of the US government. They enacted powerful policies to combat this problem. The main change in the economy was that of higher interest rates. Rates were raised multiple times by Fed chairman Paul Volcker. In the first three years of the 1980s, rates were above 10%, and about half of that time they were over 15%. These rates were sky high by historical standards. These rates did combat inflation as they intended.
There is more to this story. Recessions in the early 1980s were linked to the rate hikes as well as to the high oil prices. Eventually, around late 1982, the economy began to recover and interest rates were reduced somewhat. For the remainder of the 1980s interest rates swayed between 6 and 12%.
The higher interest and the reduced inflation rates had a stabilizing effect on the price of gold. Gold was no longer needed as a hedge for inflation, and suddenly there were many more opportunities to earn on investments. The amount of money some families had free for investment diminished as well, since mortgage rates were much more expensive during this time.
Gold prices found a low in 1985 after the highs of the early eighties, though they were not drastically lower. For the rest of the 1980s, gold prices fluctuated between $300 and $500. Obviously, the drop was hard on investors who bought at the price highs of 1980. A common insight which comes through from the early 1980s: asset bubbles are dangerous and easy to get swept up in. To be fair, they are easier to see in hindsight.
The 1990s were much calmer compared to the previous two stormy decades. The 90s began with a recession starting in mid-1990 and ended in March 1991. This recession was not particularly powerful as far as recessions go.
The Federal Reserve was again trying to combat inflation with restrictive monetary policy. In other words, there was less money circulating at this time in the US, which resulted in a suppressed economy. The recession was encouraged by the savings and loan crisis in 1989 as well, though that had a smaller impact on the economy.
On top of that, the Iraqi invasion of Kuwait in 1990 had a powerful effect on the price of crude oil for a little over half a year. The economy already being weak at the time of this event gave it little reason to recover quickly.
The price of gold stayed steady through these events, and kept roughly in line with the prices seen at the end of the 1980s. Gold had found a comfortable price around $350 to $400, and fluctuated around this price until late in the 1990s.
This was the time of the introduction of NAFTA and Bill Clinton, and the economy was running strong in America. Gold loses much of its allure as an investment in times of economic boom, since people would rather earn more by investing in the flourishing economy.
Near the end of the 1990s you can see that prices for gold had dropped some to around $300. Inflation was low in this decade. Inflation rates began the decade at 6% in 1990, then spent the rest of the decade below 3.5%. This is reflected by the starred figures for the 90s showing up in 1998 and 1999.