By the end of 1913, the classical gold standard was at its peak but World War I caused many countries to suspend or abandon it. According to Lawrence Officer the main cause of the gold standard’s failure to resume its previous position after World War 1 was “the Bank of England’s precarious liquidity position and the gold-exchange standard.” A run on sterling caused Britain to impose exchange controls that fatally weakened the standard; convertibility was not legally suspended, but gold prices no longer played the role that they did before. In financing the war and abandoning gold, many of the belligerents suffered drastic inflation.
Price levels doubled in the US and Britain, tripled in France and quadrupled in Italy. Exchange rates change less, even though European inflation were more severe than America’s. This meant that the costs of American goods decreased relative to those in Europe. Between August 1914 and spring of 1915, the dollar value of US exports tripled and its trade surplus exceeded $1 billion for the first time. Because inflation levels varied between states, when they returned to the gold standard at a higher price that they determined themselves.
Yet, gold is a market instrument and its value is prone to speculation. Therefore to enter an upwards trend the prevalent perception must be that of an upward trend. A brief look at the gold price charts for the last two months and quick review of the opinions presented in the media show the perception of gold bull market now exists.
Gold price chart can tell you the condition of the financial system. Merely taking a look at the movements of gold prices can show you many things about the state of any overall economy. Many economic experts recognize gold as an easy and very accurate barometer to measure the strengths and weaknesses of the economy and it will make gold prices graph a rather useful tool in this regard.
In March 1968, the effort to control the private market price of gold was abandoned. A two-tier system began. In this system all central-bank transactions in gold were insulated from the free market price. Central banks would trade gold among themselves at $35 per troy ounce (112.53 c/g) but would not trade with the private market. The private market could trade at the equilibrium market price and there would be no official intervention. The price immediately jumped to $43 per troy ounce (138.25 c/g). The price of gold touched briefly back at $35 (112.53 c/g) near the end of 1969 before beginning a steady price increase. This gold price increase turned steep through 1972 and hit a high that year of over $70 (2.25 $/g). By that time floating exchange rates had also begun to emerge, which indicated the de facto dissolution of the Bretton Woods system. The two-tier system was abandoned in November 197By then the price of gold had reached $100 per troy ounce (3.22 $/g).
Shortly after the gold price started its ascent in the early 1970s, the price of other commodities such as oil also began to rise. While commodity prices became more volatile, the average exchange rate between oil and gold remained much the same in the 1990s as it had been in the 1960s, 1970s and 1980s.
This was meant to be a temporary measure with the gold price of the dollar and the official rate of exchanges remaining constant. Revaluing currencies was the main purpose of this plan. No official revaluation or redemption occurred. The dollar subsequently floated. In December 1972, the “Smithsonian Agreement” was reached. In this agreement, the dollar was devalued from $35 per troy ounce of gold to $3Other countries’ currencies appreciated. This was the official price of the dollar, and policies to maintain its value relative to other currencies. However, gold convertibility did not resume. In October 1973, the price was raised to $42.2Once again, the devaluation was insufficient. Within two weeks of the second devaluation the dollar was left to float. The $42.22 par value was made official in September 1973, long after it had been abandoned in practice. In October 1976, the government officially changed the definition of the dollar; references to gold were removed from statutes. From this point, the international monetary system was made of pure fiat money.
Another main reason why it is essential for a gold investor to have knowledge on gold’s price is it may aid him or her when deciding if it’s a good point to buy, or a good point in time to sell. One thing that an investor can do is to note what gold’s spot price is at the moment he or she is buying gold; the gold prices from one day to a next can show how much the gold increased or decreased in value over time. Also if a gold investor studies a chart that shows gold’s spot prices over a period of time, he or she can determine if gold is in a rising or falling trend. Seeing what the value of gold is in most cases likely to do in the future, may help a gold investor to make a less risky investment choice.
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