What You Should Know About Gold

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Status: Finished  |  Genre: Non-Fiction  |  House: Booksie Classic

The value of gold for over six thousand years.




Authors Note:I am not a financial advisor, and this essay is not a recommendation to buy gold.

I bought my first gold coin, a Krugerrand, in 1966. It contains exactly 1 ounce of gold and cost me about $250.

Gold is currently selling at about $1,770 an ounce on the spot market. I have recently bought five Australian “Kangaroo” gold coins for my IRA. I bought them because I am convinced that we are going to see rapid inflation in the coming years.

Our government has recently printed trillions of dollars which are only backed up by its “good faith”. It plans to print trillions more of them. My daughter is a history teacher in a middle school. She believes it is her responsibility to teach her students how to think. This is how she explains the value of money to them. “Can you buy anything with leaves from a tree?” This usually get a few laughs. Then she goes on to explain, “Tree leaves are everywhere, so they have no value.  For something to have value it has to be rare.” Our dollars are becoming like tree leaves. In order to understand why gold retains its value you have to know the history of gold.

When Cortes came to the Americas in the 16th century, he found a civilization that had been established there and had never interacted with Europeans. They did not have a common language, culture or customs, the one thing that they did have in common was their love of gold. The known history of gold goes back a long way. It was first used in Eastern Europe in 4000 BC to make decorative objects.

In about 1500 BC the empire of Egypt made gold the first official medium of exchange for international trade. In Lydia, the first minting of pure gold coins began around 560 BC. In 50 BC the Romans began issuing a gold coin, in 1066 AD, William the Conqueror began a new metallic coin-based-system of currency in England.

IN 1284 Great Britain issued its first gold coin. The Republic of Florence also issued its first gold coin which became the standard for the world. The first U.S. gold coin was made in 1787.

The Great Recoinage of 1696 was an attempt by the English Government to combat counterfeit coin making. This eventually led to the adoption of paper money, also known as “fiat money”, which was based on the gold standard. The gold standard was a system in which the U.S. Dollar was based on a fixed quantity of gold. With this monetary system, an individual holding some amount of paper money could go to a bank and exchange that money for a fixed amount of gold.

Under the gold standard, the money supply is tied directly to the supply of gold.  During World War I, many nations temporarily suspend the gold standard so that they could print money to pay for their military involvement in the war. This excessive printing of money created hyperinflation.

After the stock market crash in 1929, European countries’ currencies were misaligned completely. People began to lose confidence in banks and paper money. Bank rushes and gold hoarding led to banks closing. Countries began to raise interest rates to entice people to keep deposits intact rather than converting their fiat currency into gold. This led to many nations finally suspending or abandoning the gold standard all-together in the early 1930s.

The only major nations still under the gold standard with major gold reserves were the US and France. In the US, President Roosevelt instituted a number of measures in an attempt to prevent the hoarding of gold including making banks turn all their gold holdings into the Federal Reserve, not allowing them to redeem dollars for gold, and also prohibiting any exporting of gold. In 1934, the Gold Reserve Act was instituted, which prohibited the private ownership of gold.

After the second world war some countries went back on the gold standard in an attempt to create a framework for all international currencies backed by gold. The US Dollar became a sort of de facto currency for the rest of the world because it held most of the world’s gold reserves. Most countries’ central banks began pegging their own currencies to the US dollar instead of gold, buying and selling their own currencies in the foreign exchange market to stabilize their exchange rates.

In the 1960s, inflation was high and US gold reserves had been heavily reduced to help pay for the rebuilding of Europe. In 1968, a number of countries that dominated the global supply of gold decided to stop selling gold. In 1971 President Nixon changed the price of an ounce of gold to $38 and no longer allowed the Federal Reserve to exchange dollars for gold. In1976 the gold standard was abandoned completely.

Austrian Economic Theory favors the gold standard. They believe that manipulating the money supply after the abandonment of the g gold standard is what led to instability in global financial markets. The Mises Institute states that restoring the convertibility of the dollar for a fixed weight in gold would be a move in the right direction and would help to remove monetary policy from politics. “People laud the Fed as being ‘independent,’ but of course that is absurd. The Fed as it currently operates is clearly a cartelization device that shoves new money into the pockets of rich bankers, and that allows the government to finance massive deficits much more cheaply than would otherwise be possible.”

This is where we are today. We have a population demanding more and more “free” entitlements and a government more than happy to give them away. We only have to look as far as Venezuela to see the results of this kind of policy.

The crisis in Venezuela began in June 2010 and has continued since. It is marked by hyperinflation.  Venezuela’s central bank issued a banknote worth 1 million bolivars. The banknote was worth just 52. cents at the official exchange rate at that time. Interannual inflation was running at 2,665% as of January 2021, according to the central bank. In 2019 it had reached 10 million percent.

The crisis has affected the life of the average Venezuelan on all levels. By 2017, hunger had escalated to the point where almost seventy-five percent of the population had lost an average of over 19 pounds in weight, and more than half did not have enough income to meet their basic food needs.  A UN report estimated in March 2019 that 94% of Venezuelans live in poverty and more than ten percent of Venezuelans (3.4 million) have left their country. Venezuela led the world in murder rates with 81.4 per 100,000 people killed in 2018.

Money is the storage of value. When you do one hour of work you have earned the right to receive something of value for it. If the value of the dollars your receive is continually declining, you are in effect being paid less and less for your efforts but still being at its  original value. As our country continues its “progressive” slide into socialism, you can expect to see the value of our currency approaching the value of leaves.

Submitted: May 24, 2021

© Copyright 2021 Tuxie. All rights reserved.

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