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History of the Gold Standard and Why it is so Valuable - Coins and Other Precious Metal Investment Stocks Typically go up in Uncertain Times

July 20th 2006

History of the Gold Standard and Why it is so Valuable - Coins and Other Precious Metal Investment Stocks Typically go up in Uncertain Times

Gold Coins

Gold has always been a popular investment for uncertain times.  President Herbert Hoover's said in 1933, "We have gold because we cannot trust governments."  The history goes back 5000 years.  This is the story of how it went from an international currency to an investment we all can own.

In 1821 when England enacted the first gold standard, making their money backed by gold, nearly all international trade imbalances were settled with gold.  This made a strong incentive for governments to stockpile gold for hard-times.

 

The US was one of the last countries to join an International gold standard adopted in 1871.  The Silver lobby prevented gold from being the sole monetary standard in the US until around 1900.  The standard worked well for all nations involved until the Great War of 1914.

Heavy debt and political alliances made the standard unworkable.  Around that time the British pound sterling and U.S. dollar became the global reserve currencies, and small countries began holding this currency instead of gold.  Higher interest rates during the depression made things worse and finally in 1931, England suspended the gold standard leaving the US and France the only countries with large gold reserves.

In 1934 the US government revalued gold from $20.67 to $35.00 per ounce so that more paper money could be printed.  This helped improve the economy.  Other counties began to convert their gold holdings into US dollars, and soon the US had a corner on the gold market.

 

Also, Gold production soared at that time and there was a dramatic devaluation of the dollar.  As World War II ended, the western nations met to put together the Bretton Woods Agreement, which was the framework for global currency until 1971. 

During the 1960’s inflation and a high demand for imports started taking its toll on our gold reserves.  At the end of WWII, the US had 75% of the world’s monetary gold, and our currency was still backed by gold.  In 1968 the U.S. and other European nations which made up a “gold pool” quit selling gold on the London market.  This allowed the market to determine the price of gold, and only central banks could trade with the US at $35 per ounce.  According to an article written for Investopedia, in 1971 even this bit of gold convertibility died. Gold was free at last. There was no further reason for central banks to hold it.  The more flexible paper money became the preferred financial instrument.

 
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Dan Wilson
Best Syndication

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Important:  The material on Best Syndication is for informational purposes only and is not meant to be advice. You should always seek professional advice before making financial decisions. 
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Copyright 2005 Best Syndication                   Last Updated Saturday, July 10, 2010 09:49 PM