The main factor affecting the fluctuation of gold prices over the long term is the government’s devaluation of the currency that the metal is measured by, commonly referred to as currency printing, currency debasement and money supply stimulus. The greater the amount of Money Supply, also known as Money Stock, the greater the amount of money in circulation available to bid on goods and services in an economy. Because of the scarcity of gold, the greater demand in terms of the amount of U.S. Dollars, British Pounds or other currencies drives higher fair market price levels.
Read on.
At the commencement of the 20th century, both the United Kingdom and the United States adhered to the Gold Standard. This commitment promoted an appearance of stability since gold prices in these currencies remained fixed due to their pegged value to a specific weight of gold.
Gold quoted in these currencies appeared stable since they were pegged to a given weight of gold. However, as gold traded in other locations and the supply/demand dynamics of gold mining affected liquidity, the standards set by sovereign governments became unsustainable, leading to currency dilution. The UK abandoned a true gold standard in 1931 and the U.S. followed suit in 1933.
What happened?
Easy money paved the way for currency devaluation. As the U.S. Dollar and the British Pound were diluted, gold became more valuable relative to the depreciating currencies. Under the Gold Standard, there was a surge in demand for gold in exchange for the devaluing currencies, a trend that persisted for a while. Simply put, gold’s value increased because the worth of Dollars and Pounds diminished.
Unfortunately for Americans, gold was both their solution to offset wealth devaluation and the obvious inflation-revealing nemesis of the government that wants to issue more paper currency to fund its agenda programs. The Gold Standard was designed to prevent dollar debasement and the economic boom and bust cycles resulting from artificial monetary expansion. However, the “Standard” was not adhered to. In fact, in 1933, by Executive Order, President Franklin Roosevelt outlawed individual gold ownership. This Executive Order prohibition on gold was not reversed until 1974.
Following the 1930s, politicians were less concerned about diluting their nation’s currencies because individuals could not demand the currency’s promised value. From 1933 to the 1970s, the United States adhered to a quasi-gold standard, maintaining the exchange of dollars for gold with sovereign governments through “The Gold Window.” This system aimed to support an internationally reliable valuation of competing currencies. Sovereign nations respectfully held onto their diluting dollars for a while, but by 1970, the temptation proved too great. The depletion of U.S. government gold reserves prompted President Richard Nixon to close the “Gold Window” on nations left holding a bag of dollars, so to speak. When the “Gold Window” closed in 1971, the complete transition away from the gold standard to floating exchange rates was complete.
Physical gold bullion bar prices mirrored the trends in the global trading market, operating outside the restrictions in the U.S. jurisdiction. In the first half of the 20th century, the Gold Standard in the United States and United Kingdom rendered bullion prices near their stated fixed exchange rates. After the 1950s, however, the London Bullion Market year-end closing price trend revealed how government overspending and dollar dilution during the Vietnam War affected the dollar’s purchasing value in terms of gold.
| The 1950s | The 1960s | The 1970s | |
|---|---|---|---|
| 1951 - $34.71 | 1961 - $35.15 | 1971 - $40.80 | |
| 1952 - $34.71 | 1962 - $35.10 | 1972 - $58.16 | |
| 1953 - $34.71 | 1963 - $35.09 | 1973 - $97.32 | |
| 1954 - $34.96 | 1964 - $35.09 | 1974 - $159.26 | |
| 1955 - $35.01 | 1965 - $35.13 | 1975 - $161.02 | |
| 1956 - $35.00 | 1966 - $35.17 | 1976 - $124.84 | |
| 1957 - $34.95 | 1967 - $35.19 | 1977 - $147.71 | |
| 1958 - $35.10 | 1968 -38.69 $ | 1978 - $193.22 | |
| 1959 - $35.09 | 1969 - $41.09 | 1979 - $306.88 | |
| 1960 - $35.28 | 1970 - $35.94 | 1980 - $612.56 |
When the Federal Government reacted to support sound money, the inflationary bubble had to pop, or otherwise start to adjust, as it did in December 1929. Gold emerged as a safe haven, protecting those who understood its value. Unfortunately, owning gold as a safeguard against inflation was viewed politically as hoarding and made illegal by the 1933 Executive Order. The government confiscated individuals’ gold at the $20.67 per ounce exchange valuation, robbing owners of its fair market value, which was later adjusted and pegged at $35 per ounce.
At the end of the war in 1944, at The United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire, delegates from forty-four nations envisioned a sovereign currency exchange system that would foster stability and dissuade sovereign currency competitive devaluations, and thereby promote real economic growth. By 1958, the Bretton Woods system became fully functional as currencies became convertible in terms of the dollar, which was still pegged and exchanged at $35 per ounce of gold. Countries settled international balances in dollars, and US dollars were convertible to gold at a fixed exchange rate of $35 an ounce. The United States lived within its means, the dollar was stable and prosperity flourished, for a while.
The 4 key Aspects of Supply-Side “Reaganomics” are:
Noteworthy: A key requirement of Reaganomics is reduced growth in government spending, a concept that is not politically favorable for buying voter loyalty. Although the 80s sound government did not last long, it did usher in many things that rendered gold less desirable. Reaganomics was bad for gold but good for humanity. Gold prices languished in the 1990s, and stocks flourished. In fact, by the mid-1990s gold bullion was argued by one author as a relic in terms of its importance in the modern economy. History and individual investors have seemed to have clearly proven otherwise.
Understanding the factors influencing gold prices is crucial for making informed decisions before buying gold. That said, this historical analysis reveals the impact of government actions, economic policies, and global events on the value of gold and offers valuable insights into potential trends and factors influencing future gold prices. As you consider investing in gold, recognizing these historical patterns can guide your decision-making process and enhance your understanding of gold’s enduring role in wealth protection.
Interested in investing in gold bullion bars? Carefully consider the current precious metals market conditions and consult a professional to help you make your purchase. Monex offers a selection of expert reports, reference materials, and knowledgeable Account Representatives to help you make an informed decision. Contact us for more information.
The Royal Canadian Mint’s Commitment to Quality In 1979, the prestigious Royal Canadian Mint began production of the 1 oz. Canadian Maple Leaf gold coin with a consistency of 99.9%. At the time, the only competitive private investment coin in the market was the 91.67% pure gold South African Krugerrand. The increased gold purity consistency more…
The Iconic Maple Leaf Known for its vibrant autumn colors, the maple tree is a prominent species in the eastern Canadian landscape. While the tree itself was an invaluable part of the indigenous Canadians and early settlers’ lifestyle, the Canadian government did not officially adopt the maple leaf as its national symbol until 1965. Today, more…
Want your offer sooner?
Faster delivery
is available by phone.
800-444-8317
Faster delivery is
available by phone.
Gold 
Silver 
