- Posted June 17, 2014 by
Gold Maintains its Place in History
Gold is the oldest and most coveted currency in the world. History informs us that gold is the only asset that maintains its value during periods of crisis, changes in governments and during wars and major economic upheavals. When paper monies lose their value, gold remains stable and that is why international banking institutions as well as private industrialists keep a supply of gold on reserve
Till the 1920’s, the franc, dollar, and British pound were backed by gold and had a relatively stable value. Citizens, however, could no longer access gold through an exchange of paper currency with the banks. As the twenties continued, the post-World War I depression was temporarily alleviated by international loans and credit provided through a series of installment payments for both tangible and intangible property. This monetary infusion created increased production and manufacturing based on promises to repay. However, these promises collapsed in late 1929 with the crash of the NY stock market and the losses incurred by the banks that had extended the credit. As payments defaulted, bankruptcies halted most production, jobs disappeared and a global economic crisis occurred.
The Gold Standard
The gold standard which had been abandoned before WWI was introduced again at this time and became effective after WWII when it was re-adopted by the Bretton Woods Agreement. This pact required most countries to convert all foreign holdings employed to back their currencies into gold. $35 was the price set for an ounce of gold. Since America held the majority of the world's gold at that time, most world currencies were linked to the dollar creating a situation whereby the dollar effectively became the world currency.
By 1971, economic conditions were under pressure and needed changes. Representatives of the ten most industrialized nations met in Washington D.C in December of that year to discuss witch measures to take in order to make these changes. The result was the Smithsonian Agreement which called for an immediate increase in the price of gold to $38 per ounce.
Unfortunately, this small adjustment proved to be too little and too late. International economic conditions continued to deteriorate, until in 1973, the U.S. Government was forced to devalue the dollar a second time by raising the official price of gold to $42.22 per ounce. In the end, all international currencies were allowed to "float" freely against gold. By June of that year the London Gold Fixing had jumped to an unparalleled $120 per ounce and the ensuing demand that took place during the following months pre- staged the creation of gold futures trading on the COMEX in January 1975.
Over the last two decades, gold has risen to as high as $1410 per ounce in 2010. Industry and jewelry make up much of the demand for gold while investing continues in gold bullion, gold stocks, binary options and on currency exchanges.
Gold continues to fluctuate. According to commodity analysts, few assets performed worse than gold in 2013, as investors fled the precious metal due to an improving U.S. economy and continuing low inflation. Most forecasters believe these factors would only continue to put downward pressure on the price of gold in 2014, but the metal has been defiant in recent weeks, rising a two-month high yesterday of $12.50 per ounce to settle at $1326.