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
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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