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A great depression and its relevance to gold speculation

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Gold standard

The History of Gold Prices Since World War II

 

Gold as an investment is considered as protection against economic troubles. Physical gold is used in manufacturing and jewelry as well as a store of wealth for investors. The recent history of gold prices has been very volatile.

 

From WWII (around 1941) until 1971, the US fixed the price of gold at 35 USD per ounce. President Nixon eliminated the fixed gold price in 1971, allowing gold prices to move with market demand.

 

After the US dropped the gold standard, gold prices soared, tripling in value hitting $100 in May 1973. The price varied between 100 USD and 150 USD until the end of 1977. Gold moved steadily upward in 1978 and 1979 and peaked at 850 an ounce on Jan 21, 1980.

 

Gold dropped in price 113 USD on Jan 22, 1980, starting a long downward trend in price. The initial drop was to 315 USD in March 1982. Prices exceeded 450 USD at the end of 1982 and again in April through June of 1987, but the two-decade trend was lower prices. By late 2000, gold was around 250 USD per ounce.

 

Gold prices started a sharp climb in early 2002. It hit 400 USD in December 2003, 500 USD in December 2005 and 700 USD in May 2006. The previous record of 850 USD was passed on Jan. 2, 2008. Gold peaked at 1011 USD on March 17, 2008.

 

From March 2008 until the end of July 2009 gold fluctuated between 750 USD and 1000 USD per ounce.

 

 

 

Studies have indicated that as a conflict progresses and develops (civil war etc) and the masses flock to gold this development contributes to a downturn in national economies. Many governments will attempt to counter this by suspending gold convertibility (or devaluing the currency in gold terms) which again results in a scenario where many choose to sell their gold positions to rather place their wealth in the market (stocks, bonds, banks) and therefore making an economical national recovery possible. What policies countries followed after casting off the gold standard, and what results followed varied widely.

 

Every major currency left the gold standard during the Great Depression. Great Britain was the first to do so. Facing speculative attacks on the pound and depleting gold reserves in September 1931, the Bank of England ceased exchanging pound notes for gold and the pound was floated on foreign exchange markets.

 

 

 

Great Britain, Japan, and the Scandinavian countries left the gold standard in 1931. Other countries, such as Italy and the United States, remained on the gold standard into 1932 or 1933, while a few countries in the so-called "gold bloc", led by France and including Poland, Belgium and Switzerland, stayed on the standard until 1935–1936.



 

According to later analysis, the earliness with which a country left the gold standard reliably predicted its economic recovery. For example, Great Britain and Scandinavia, which left the gold standard in 1931, recovered much earlier than France and Belgium, which remained on gold much longer. Countries such as China, which had a silver standard, almost avoided the depression entirely. The connection between leaving the gold standard as a strong predictor of that country's severity of its depression and the length of time of its recovery has been shown to be consistent for dozens of countries, including developing countries. This partly explains why the experience and length of the depression differed between national economies.

 

 





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