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The Gold Standard - 50 Years On

Monday, August 16, 2021

The Gold Standard was officially abandoned by President Richard Nixon on 15th August 1971, which meant that the US Dollar was no longer convertible into actual gold.

A pivotal decision that threw the monetary system of the post-war era into disarray and propelled gold from a set $35 price to next to $1800 today.

Let's examine how this choice is still affecting people today.

What was the Gold Standard?

Simply put, it was a monetary system in which the value of a country's currency was directly linked to gold.

To determine the value of a country's currency, the gold standard established a fixed price for buying and selling gold.

But why would a government wish to bind its currency to gold?

The Gold Standard, according to some monetarist beliefs, imposed a natural limit on how much money could be issued, preserving price stability, and preventing inflation.

The Federal Reserve, however, was free to print as much money as it wanted after Nixon's decision to close the "gold window."

What did this result in?

As a result, the United States entered an era of out-of-control debt and money production. The government debt of the United States has already surpassed $28 trillion, as the currency is no longer backed by a physical asset.

For the first time since World War II, the US debt exceeded 100% of GDP in October 2020. This indicates that the United States' debt now exceeds the size of its whole GDP.

What happened to gold?

Gold is now 50 times more expensive than it was when the Gold Standard was abolished.

According to the World Gold Council, gold is now one of the most liquid assets in the world, with a daily trading volume of $145.5 billion.

Where’s that leave us today?

A restoration to the Gold Standard, despite some calls for it, is unlikely.

For the time being, we're stuck with the monetary system of endless money production, which reduces the value of each currency while increasing the value of each ounce of gold.