40 years ago this past Monday, the final link between the U.S. Dollar and gold was severed by President Richard Nixon. Since, the dollar has freely floated against other currencies. Up until that time, gold was exchanged at a fixed rate of $35 per ounce as setup under the Bretton Woods Agreement following World War II.
While totally paper-backed currencies had existed before in the U.S. and around the world, this was the first time the entire world monetary system was not backed by anything except “full faith and credit.”
Many economists point to this event as an important milestone in the relationship between gold and the U.S. dollar. In the decade following Nixon’s announcement, the U.S. economy experienced much stagnation and inflation. Long-term, the U.S. dollar in relation to gold has consistently gotten weaker.
One explanation of Nixon’s move is described by Detlev Schlichter in the Wall Street Journal’s Europe edition as ushering in a new “…global system of unconstrained paper money under full control of the state.”
Others though, including Nixon, contend the move helped protect the dollar from instability.
Regardless of the debate, gold priced in dollars has risen 50-fold in the 40 years since
Up until August 15, 1971, governments and banks holding dollars could exchange one dollar for 1/35th of an ounce of gold as set up under the Bretton Woods Agreement.
Today, one dollar equals nearly 1/1800th of an ounce of gold and is always increasing.
Understanding why the price of gold has increased so much and its connection to Nixon’s move is the subject of intense debate. Some point to this as indication of a weakening dollar. Others maintain this move lifted any restraints on the governments, allowing them to spend at will and resulted in a ‘boom and bust’ economy experiencing a much heavier debt burden.
The burdens of this economic stagnation are leading some to advocate a return to some sort of gold standard.
To learn more about currency devaluation and how you can protect yourself by purchasing gold, read an article in our gold investors’ knowledge center today about buying gold as a hedge against currency depreciation.
And if you’re ready to buy gold coins or bars to safeguard the value of your wealth, contact gold bullion dealers at Provident Metals today.