The investment and consumer fields regard gold as highly important which is why it is one of the most widely discussed metals. Posted by James Randolph on September 22, 2011
Gold’s Correlation to Money
September 22, 2011 – The investment and consumer fields regard gold as highly important which is why it is one of the most widely discussed metals. Undeterred by the fact that gold is no longer bestowed as a principal type of currency in developed nations, it persists having a powerful effect on the worth of those currencies. Additionally, there is a strong association linking its value and the strength of currencies trading on foreign exchanges.
The connection between gold and money is contingent upon certain perspectives, three of them being:
- Since the 4th century, gold was used to support fiat currencies, or the different exchanges acknowledged as legal tender in their country of origin. Up until the 20th century, the precious metal was used as the world reserve currency; the United States adopted the gold standard as far as 1971 when President Nixon abandoned it.
- Gold was utilized because it limited the quantity of money countries were permitted to print. Countries had restricted gold stockpiles available back then as we do now. Prior to the gold standard’s desertion, nations couldn’t merely print their fiat currencies as much as they wished. They could only do so if they had an equal amount of gold which kept money makers in check.
Even though the gold standard is not part of the economic philosophy in developed worlds, several economists believe we ought to go back to it on account of the unpredictability of the U.S. dollar as well as other currencies.
- When countries endure high levels of inflation, investors typically buy large quantities of gold. The claim for gold boosts throughout inflationary periods because of its intrinsic value and confined supply. Gold is capable of maintaining value much better than other forms of currency merely because it cannot be adulterated.
- In April 2011, investors dreaded moribund values of fiat currency and the price of gold soared to a whopping $1,500 an ounce (actually it reached $1,900 this month). This denotes there was little credence in the currencies on the world market and that outlooks for future economic solidity were bleak.
- Supply and demand of the domestic currency can be disturbed and inflation might emerge when central banks buy gold. This is mostly because banks depend on printing more money to buy gold, thus generating a surplus supply of the fiat money.
Senior Staff Writer – Certified Gold Exchange