The rise of gold prices today has attracted many to gold investing.
To know gold better, I believe it is necessary for us to understand its history.
Now, we shall commence with exploring gold's history.
Being first used as commodity money, gold has been highly prized as a material with great value.
Because of its use as money, gold has been regarded as a reliable store of value by many people.
However, the price of gold then was not defined, giving rise to various unfair practices related to gold.
Thus, when UK adopted the gold standard, Isaac Newton being master of the London Mint set the price of gold in 1717.
Use of the gold standard had allowed nations to exchange their currencies for gold.
This helped limit the supply of currency (man-made money) because there was only a finite amount of gold available to back up the amount of circulated money.
Unlike now, countries then couldn't legally print money because of the gold standard.
In a way, inflation then could be curbed as money supply was not easily manipulated by governments.
However, because of this, deflation became hard to avoid and 1 clear example of this would have to be the 1929 Great Depression.
The reason for this is because governments couldn't freely increase money supply at that time and this made it hard to boost consumption, allowing the Great Depression to persist for a very long period of time.
Since historical times, gold prices tend to rise when there is fear and anxiety.
As a side note, rising gold prices would also mean poor government policy and this usually triggers desperate responses by governments.
For example, during the Great Depression, in response to rising gold prices, US President Franklin Delano Roosevelt forced every American to return their gold to the government at US$20.
67/oz via penalties.
This was done to cover up the fact that the US printed too much US dollars without enough gold reserves to back them.
Also, this action could help Americans get accustomed to using paper money instead of gold.
However, after confiscating the gold of America, Franklin Delano Roosevelt increased gold price to US$35/oz.
In a way, Americans were cheated of about US$15 for every troy ounce of gold they returned to their government.
With this, the US was placed at a severe disadvantage as the whole world except US could exchange US dollars for gold at a very low price of US$35/oz.
This caused the supply of gold to plummet as the low price discouraged investment in gold mining and its infrastructure.
At the same time, manufacturers were able to harness the many uses of gold at very low prices, leading to an rise in gold demand.
The phenomenon of such steep increases in demand caused a lot of gold to flow out of the US.
By the 1960s, the US had insufficient gold reserves to cover its liabilities to other countries.
In addition, the US also faced threats of countries like France wanting to exchange US dollars for gold at US$35/oz.
All these became worsened when US imported more goods and services than the amount they exported.
To remove limits gold had for increasing money supply, US President Richard Milhous Nixon removed the US dollar from the gold standard.
In the past, the US could only circulate $35 for every troy ounce of gold in their reserves.
However, after 1971, without gold backing the dollar, the amount of US dollars that can be circulated became infinite.
This allowed the US to print its way out of debt and depreciate its currency to increase price competitiveness of its exports.
The removal of the US dollar from the gold standard caused the world to frantically rush for gold at US$35/oz, causing gold prices to rise sharply.
It was only until 1975 when US President Gerald Ford allowed American to own and freely trade gold again.
By then, gold had become far more expensive than US$35/oz due to the demand-supply imbalance of high demand and low supply.
As inflation rose, gold demand increased.
This continued until 1980 when gold supply finally matched that for demand as many miners got drawn back to mine gold to profit from the high gold prices.
By then, coupled with the effect of a depreciated US dollar, gold prices increased from US$35/oz in 1969 to US$680 in 1980, at an astounding rate of 24.
4% per year.
Since 1980, gold prices remained low while stocks ushered in their bull market until 2000 when the dot-com bubble burst.
Similarly, driven by fear and anxiety, many investors rushed for gold and this pushed gold prices high up again.
From 2001 to 2008, gold prices rose from US$250/oz to US$1,000/oz at an astonishing rate of 18.
8% per year.
Although there was a correction in commodities during 2008, gold prices still remained rather high.
At the present, gold is around US$1,300/oz and has hit record highs recently.
Upon knowing the history of gold, I believe that investors now have a clearer picture of gold being an investment.
However, as the world changes rapidly, it is vital that investors do their due diligence in studying the changes well.
With this, they can adapt to any change and stay profitable for very long.
To know gold better, I believe it is necessary for us to understand its history.
Now, we shall commence with exploring gold's history.
Being first used as commodity money, gold has been highly prized as a material with great value.
Because of its use as money, gold has been regarded as a reliable store of value by many people.
However, the price of gold then was not defined, giving rise to various unfair practices related to gold.
Thus, when UK adopted the gold standard, Isaac Newton being master of the London Mint set the price of gold in 1717.
Use of the gold standard had allowed nations to exchange their currencies for gold.
This helped limit the supply of currency (man-made money) because there was only a finite amount of gold available to back up the amount of circulated money.
Unlike now, countries then couldn't legally print money because of the gold standard.
In a way, inflation then could be curbed as money supply was not easily manipulated by governments.
However, because of this, deflation became hard to avoid and 1 clear example of this would have to be the 1929 Great Depression.
The reason for this is because governments couldn't freely increase money supply at that time and this made it hard to boost consumption, allowing the Great Depression to persist for a very long period of time.
Since historical times, gold prices tend to rise when there is fear and anxiety.
As a side note, rising gold prices would also mean poor government policy and this usually triggers desperate responses by governments.
For example, during the Great Depression, in response to rising gold prices, US President Franklin Delano Roosevelt forced every American to return their gold to the government at US$20.
67/oz via penalties.
This was done to cover up the fact that the US printed too much US dollars without enough gold reserves to back them.
Also, this action could help Americans get accustomed to using paper money instead of gold.
However, after confiscating the gold of America, Franklin Delano Roosevelt increased gold price to US$35/oz.
In a way, Americans were cheated of about US$15 for every troy ounce of gold they returned to their government.
With this, the US was placed at a severe disadvantage as the whole world except US could exchange US dollars for gold at a very low price of US$35/oz.
This caused the supply of gold to plummet as the low price discouraged investment in gold mining and its infrastructure.
At the same time, manufacturers were able to harness the many uses of gold at very low prices, leading to an rise in gold demand.
The phenomenon of such steep increases in demand caused a lot of gold to flow out of the US.
By the 1960s, the US had insufficient gold reserves to cover its liabilities to other countries.
In addition, the US also faced threats of countries like France wanting to exchange US dollars for gold at US$35/oz.
All these became worsened when US imported more goods and services than the amount they exported.
To remove limits gold had for increasing money supply, US President Richard Milhous Nixon removed the US dollar from the gold standard.
In the past, the US could only circulate $35 for every troy ounce of gold in their reserves.
However, after 1971, without gold backing the dollar, the amount of US dollars that can be circulated became infinite.
This allowed the US to print its way out of debt and depreciate its currency to increase price competitiveness of its exports.
The removal of the US dollar from the gold standard caused the world to frantically rush for gold at US$35/oz, causing gold prices to rise sharply.
It was only until 1975 when US President Gerald Ford allowed American to own and freely trade gold again.
By then, gold had become far more expensive than US$35/oz due to the demand-supply imbalance of high demand and low supply.
As inflation rose, gold demand increased.
This continued until 1980 when gold supply finally matched that for demand as many miners got drawn back to mine gold to profit from the high gold prices.
By then, coupled with the effect of a depreciated US dollar, gold prices increased from US$35/oz in 1969 to US$680 in 1980, at an astounding rate of 24.
4% per year.
Since 1980, gold prices remained low while stocks ushered in their bull market until 2000 when the dot-com bubble burst.
Similarly, driven by fear and anxiety, many investors rushed for gold and this pushed gold prices high up again.
From 2001 to 2008, gold prices rose from US$250/oz to US$1,000/oz at an astonishing rate of 18.
8% per year.
Although there was a correction in commodities during 2008, gold prices still remained rather high.
At the present, gold is around US$1,300/oz and has hit record highs recently.
Upon knowing the history of gold, I believe that investors now have a clearer picture of gold being an investment.
However, as the world changes rapidly, it is vital that investors do their due diligence in studying the changes well.
With this, they can adapt to any change and stay profitable for very long.
Source...