In the new age of currency, gold has become an afterthought.
So nonexistent is gold as a traditional currency that some of our
younger readers may not even realize that gold underpinned U.S. and
world currencies throughout much of the 1800s and 1900s.
The gold standard was a system under which currency values were tied
directly to gold, allowing gold to be exchanged between nations that
used different forms of currency. This encouraged trade, and was a
trustworthy option for foreign diplomats.
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First adopted by Great Britain in 1821, the gold standard enabled
governments to issue paper money that was backed by and exchangeable
for gold. The amount of money circulating in a country depended upon
the amount of gold it had.
Precious Metals Basics: The rise and fall of the gold standard
Sean Williams of The
Motley Fool, a website devoted to investing news and opinions,
posed the following question last week:
Would President Trump really put America back
on the gold standard?
The question was asked based on the fact that Trump told GQ last year that bringing the
back the gold standard would be tough, but “wonderful.”
Impact on possible return
Williams says most economists don’t think that a return to the gold
standard, which was abandoned by the U.S. in 1971, would be a positive
fiscal move for the United States, as it was the move away from the
standard in 1933 that played a large role in getting America out of
the Great Depression.
Various issues could arise from a return to the gold standard,
Williams explains. The value of gold can swing tremendously, which
could have drastic impacts on the value of the U.S. dollar. We can
forecast gold’s market all we want, but as Williams tells us, things
can change quickly.
“For example, between 2011 and early 2016, the price of gold on a
per-ounce basis fell by 45%,” Williams writes. “Also, the gold market
tends to stay in bull and bear markets for an extended period of time
(a decade or longer), meaning recessions would be particularly hard
for the U.S. economy to overcome if gold's per ounce price was also low.”
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The market as a whole is at an interesting place, as the new U.S.
president offers reasons to think the value of gold may increase. His
lack of polictal experience could mean a looming trade war with other
nations, Williams writes, and the success or failure of his proposed
tax reforms could have major implicatiosn for the price of tangible assets.
He loves gold
Trump’s enthusiasm for gold stretches back into the 1970s.
Williams writes that Trump bought lots of gold when the U.S.
legalized private ownership of the metal in 1975.
“Selling for about $185 an ounce at the time, Trump noted that he
sold his stake between $780 an ounce and $790 an ounce, calling the
money-making investment ‘easier than the construction business.’”
His full quote to GQ last year on a return to the gold
standard was, “Bringing back the gold standard would be very hard to
do, but boy would it be wonderful. We’d have a standard on which to
base our money.”
Don’t expect the gold standard to make a dramatic return, but with
Trump in office, we’ve all learned to never say never.