Nicolas Woods

Prof. Mesznik
Intro: Econ, Business, Fin
4 July 2015
U.S. & Gold In the Past 100 years
Gold is a rare metal, which has been considered to be the most precious metal in
the world; for the past thousands of years, civilizations, empires and countries had
coveted Gold because of its beauty and value. Today it is commonly regarded as a
commodity, serving the evolution of humanity with great economical, social and political
importance. Because of its appeal to countries, especially in the U.S., in the mid-1800s
The Gold Standard, known as a monetary system, was purposefully established to record
a standard economic unit of account built upon on a fixed quantity of Gold (Kimberly
Amedo).1 Within this monetary system lies three different branches:
1) Gold Specie Standard a monetary unity that links with the value of circulating
Gold coins
2) Gold Bullion System Gold coins are replaced with Gold bullion, which are on
demand at a fixed price in exchange for the circulating currency
3) Gold Exchange Standard a government establishes a fixed exchange rate to
the currency of another country that uses a Gold standard. E.g. a person from
Peru can take his or her money (soles) to the U.S. and exchange his or her money
to Gold (specie or bullion), at a fixed exchange rate that the U.S. Government
guarantees.2
Gold was used to balance the value of a currency, not allowing it to deflate or
inflate. Before The Great Depression, during WW1, in order for countries like Britain,
U.S., France, Italy, etc. to finance the war, they needed to print money (Yingting Qiang).3
The Gold Standard monetary system, didnt allow these countries to do such thing,
therefore, The Gold Standard system was replaced with The Gold Exchange Standard
monetary system, which basically allowed these countries to inflate their currency by
printing money. However, in the United States, during The Great Depression, their
economical focus pivoted from controlling inflation/deflation to unemployment rate
(23.6% at its peak 1932) (Drawing Detroit).4 When the stock prices collapsed, investors
traded their currencies to Gold because its value of rose. Banks were going bankrupt and
the U.S. Government tried stabilizing the economy by raising the interest rates to make
1 http://useconomy.about.com/od/monetarypolicy/p/gold_history.htm
2 http://www.encyclopedia.com/topic/Gold_standard.aspx
3 https://www.mtholyoke.edu/~qiang20y/project/after.html
4 http://www.drawingdetroit.com/2012/04/

the value of the currency higher; but, because of this action, also the costs of companies
rose, therefore, companies also collapsed (George Selgin).5
After the release of Keynes book The General Theory of Employment, Interest
and Money, political empowerment stimulated by President Franklin Delano Roosevelt
obligated every citizen and bank in the country to turn in any merchandise made up of
Gold to the Federal Reserve ($300 million of Gold coin and $470 million of Gold
certificates) (History Channel).6 After WW2, The United Nation Monetary and Finance
Conference also known as the Bretton Woods Conference was held in order to establish
an international fixed exchange rate to change USD (35$) to an ounce of Gold in order to
rebuild Europe and Asia after the devastating war. After the policy was implemented, it
only lasted for so long; the policy didnt meet its predicted expectations. In 1964 the U.S.
began to experience inflationary monetary policies, therefore, other countries as well had
to inflate their monetary policies. In 1971, President Nixon ended the convertibility
between the dollar and Gold exchange to focus on the domestic inflation problem the
U.S. was enduring at the timetransitioning from The Gold Exchange Standard to a Fiat
Currency System (Sandra Kollen Ghizoni).7
Since then, Gold has been a valuable commodity to keep in reserves for investors.
Investors like to keep at least 10% of their money in Gold because if the economy faces a
financial crisis, investors are better off placing their money in Gold than any other
company in the Stock Market. For example: In the 2008-09 financial crisis, Gold prices
peaked, growing 24% in one year (Debbie Carlson).8 This happened because people
retrieved their money from other investments, sold or placed their money in a stable
commodity, Gold.
Even though today the value of the USD Index is greater than the Gold PM
London Fix (Figure 1), in China, a top contender in leading the worlds economy, is
producing a great amount of Goldproducing over 400 tons in 2014 (Figure 2) (Louis
Cammarosano).9 Seeing these two different collections of data, it is hard to predict
whether the value of Gold is rising or if it is dropping, or both Gold and the USD is
growing. Debate and speculation has risen over the past few years, where economists are
arguing that the U.S. economy is slowing down or might slow down. According to Martin
Feldstein, economist and professor at Harvard College believes that low interest rates and
5 http://object.cato.org/sites/cato.org/files/pubs/pdf/pa729_web.pdf
6 http://www.history.com/this-day-in-history/fdr-takes-united-states-offgold-standard
7 http://www.federalreservehistory.org/Events/DetailView/33
8 http://www.kitco.com/news/2014-10-13/2008-Financial-Crisis-SetStage-For-Gold-Rally.html
9 https://smaulgld.com/chinese-gold-mining-production/

the extensive creation of bank reserves could lead to inflation; however others argue
otherwise (Martin Feldstein).10 Even though this might occur, he doesnt believe that
investing in Gold is a good hedge fund since it shows minimal growth in value. However,
during the 2008-09 financial crisis, investors saw that Gold prices rose 24% in one years,
therefore, it his uncertain to know whether or not Gold has value; it comes down whether
you believe in it or not. There isnt a cut and dry answer to the problems and that might
arise in the future, but it is certain that anything can be attempted to solve these
economical problems and anything can happen.

(Figure 1: Macrotrends Dollar, Gold, Oil Chart Last Ten Years)

10 https://www.project-syndicate.org/commentary/is-gold-a-goodhedge

(Figure 2: Smaulgld - Chinese Gold Production)

Works Cited

Amedo, Kimberly. "What Is the History of the Gold Standard?" About News. N.p., n.d.
Web. 5 July 2015.
<http://useconomy.about.com/od/monetarypolicy/p/gold_history.htm>.
Cammarosano, Louis. "CHINESE GOLD MINING PRODUCTION." Smaulgld. N.p.,
n.d. Web. 5 July 2015. <https://smaulgld.com/chinese-gold-mining-production/>.
Carlson, Debbie. "2008 Financial Crisis Set Stage For Gold Rally." Kitco News. N.p., n.d.
Web. 5 July 2015. <http://www.kitco.com/news/2014-10-13/2008-FinancialCrisis-Set-Stage-For-Gold-Rally.html>.
Donald L., Kemmerer. "Gold Standard." Encyclopedia.com. N.p.: n.p., n.d. N. pag. Print.
"FDR takes United States off gold standard." History Channel. N.p., n.d. Web. 5 July
2015. <http://www.history.com/this-day-in-history/fdr-takes-united-states-offgold-standard>.
Feldstein, Martin. "Is Gold a Good Hedge?" Project Syndicate. N.p., n.d. Web. 5 July
2015. <https://www.project-syndicate.org/commentary/is-gold-a-good-hedge>.
Ghizoni, Sandra Kollen. "Nixon Ends Convertibility of U.S. Dollars to Gold and
Announces Wage/Price Controls." Federal Reserve History. N.p., n.d. Web. 5 July
2015. <http://www.federalreservehistory.org/Events/DetailView/33>.
"The Gold Standard System During and After WWI." Revisit The Great Depression. N.p.,
n.d. Web. 5 July 2015.
<https://www.mtholyoke.edu/~qiang20y/project/after.html>.
"Monthly Archives: April 2012 Telescoping in on unemployment: Week 2." Drawing
Detroit. N.p., n.d. Web. 5 July 2015. <http://www.drawingdetroit.com/2012/04/>.

Selgin, George. "The Rise and Fall of the Gold Standard in the United States." Policy
Analysis. N.p., n.d. Web. 5 July 2015.
<http://object.cato.org/sites/cato.org/files/pubs/pdf/pa729_web.pdf>.