31 Oct A Brief History of Gold and the U.S. Dollar’s Relationship
Here are a few key dates in the history of the US to illustrate how the relationship between gold and U.S. $ has changed over time.
Key Dates in U.S. $ and Gold’s Relationship
1944 – the Bretton-Woods agreement made the U.S. $ the official global currency and it was defended by setting the value of gold at $35 per ounce.
1968 saw a surge in gold demand and resulted in a U.S. Congressional repeal of the requirement that Federal Reserves Notes be backed by gold.
From 1968 until 1971, the US government quite often changed the gold-dollar parity. The cost of the Vietnam War and the huge economic disturbances caused by the oil crisis significantly contributed to this change.
In 1971, President Richard Nixon said the U.S. would no longer convert dollars into gold at the official exchange rate, this was only supposed to be temporary, however, other countries didn’t want to hold U.S. $, but rather convert them into gold, resulting in depleted U.S. gold reserves.
In 1972, the U.S. $ amount required to buy a troy ounce of gold was raised from $35 to $38.
In 1973, the price of gold was raised to $42.22. The arrangement was still unfeasible, as the U.S. would have needed to convert too many U.S. $ into gold – the U.S. $ then became a free-floating currency. This resulted in the definitive end of the Bretton-Woods system.
By the end of 1974, gold had reached a price of $183. Long term stagflation, economic and financial crises, the rapid growth of oil prices and the Yom Kippur war in the Middle East caused panic and a run on gold.
In 1975, gold began trading, for future delivery on New York and Chicago exchanges and in 1976, Nixon officially abandoned the gold standard altogether.
In 1979, Khomeini’s revolution broke out in Iran and that caused a second oil crisis, which pushed gold prices to record heights. In January 1980, these prices reached $678.
In September 1980, gold still cost $675, but Reagan economics then solved a lot the USA’s economic problems. The Fed ended inflation with double-digit interest rates but caused a recession.
In June 1999, the gold price was merely $256 an ounce, but those who had trusted in gold had been proved to be right and in October 1999 gold reaches a two-year high of $338 after agreement to limit gold sales by 15 European central banks.
Between 2003-2004, gold breaks above $400 and investors increasingly bought gold as risk insurance for portfolios.
In April 2006, gold prices surpass $600.
In 2008, gold shot up to $869.75 an ounce during the financial crisis. In the following months gold reached the $1,000 mark for the first time in US future market history.
In September 2010, gold hits record heights for five successive sessions, peaking at $1,296.10. A few months later, in December, gold reached a fresh record high above $1,425 an ounce.
In the following years the price of an ounce of gold hit an all-time record of $1,895 in September 2011, in response to worries that the U.S. would default on its debt. After that soar in prices it has fallen gradually to a level of $1,100 per ounce, as the U.S. economy has improved and inflation remains low. Gold prices have steadily increased ever since reaching a price of $1,287 most recently.
Price of Gold – The Lessons Learned
We can see that the commitment to own gold has withheld the test of time. While gold has had its ups and downs, ever since the US dropped the gold standard, its value in US dollars has continued to rise over time.
Consider gold coins and bars to preserve your purchasing power, protect against counter-party risks and compensate for the certain devaluation of Dollars, Euros and Yens.
An ounce of gold bought in the late 60’s for $38 (equivalent to $258 in these days) is worth around $1,300 nowadays.
Not a bad deal if you play your cards right.
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