Cuyahoga Community College District
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Of all the precious metals (silver, platinum etc), gold is probably the most popular as a safe haven against any economic, political, or social crises, and as an investment. These crises include market declines, inflation, war, and social unrest; Investors also buy gold during times of a bull market to profit on gains in gold prices. Gold is a great investment (for whatever the reason) since its value can never drop to zero like a stock can.
Year price per ounce
1970 37.4
1975 140.3
1980 589.5
1985 327
1990 353.4
1995 369.6
2000 272.7
2005 513
2008 865
As shown in the chart, gold has increased in value in times of war (consider Viet Nam).The government was spending more than $2 billion per month on the war by 1967, and spurred serious inflation between 1965 and 1975. Gold also rises considerably during inflationary periods (such as the U.S. experienced in 1980). Gold today is now about $954 per ounce, reflecting market declines and investor jitters in a very unstable and uncertain economy. Believe it or not, many financial gurus think that gold could go to at least $1500 per ounce in the long term.
So what is the gold standard anyway? The gold standard meant that countries would fix the prices of their domestic currencies in terms of a specified amount of gold. It also meant that paper currency, including deposits and notes held by the populace, could be converted to gold at the fixed price.
A short and cursory history of the standard:
The U.S. was on the gold standard since 1834, with the price of gold fixed at $20.67 per ounce, a price that remained unchanged till 1933. Other major countries joined the gold standard in the 1870s.
In 1933, President Roosevelt ended the gold standard when he outlawed private gold ownership (except for making jewelry).
Between 1946 and 1971, countries operated under the Bretton Woods system. Under this modified gold standard, the U.S. government promised to exchange other country’s’ holdings of dollars for gold at a fixed rate of $35 per ounce. During this time, the U.S. balance-of-payments deficits (the inability of the U.S. to exchange its currency for other country’s currency or for gold) reduced U.S. gold reserves, reducing confidence in the ability of the United States to redeem its currency in gold. Finally, in 1971, President Nixon announced that the United States would no longer redeem currency for gold. This was the end of the gold standard for good.
So what was the fascination with having a gold standard? The main feature of it was that it ensured a steady money supply; a country could only print as much money as it had gold, so to discourage inflation. Another benefit was that it kept budget deficits at low ebb.
What we have now is called fiat money, meaning that it is money merely based on faith, on the promise of the government that it is of value, despite that it is not backed by any commodity like gold, so has no “real value.”
If you are thinking we should be back on the gold standard to fix our financial and economic crises , you are in good company--- many experts think so too.
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