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The Gold Standard

When you spend time talking to those who invest or deal in gold, or you just study and read about it, you’re going to hear a lot of different terms and ideas get thrown around. If they relate to gold IRA investing, I try to do my best to let you know what they are. More importantly, I try to help explain what they actually mean and how they pertain to your investment plans.

Today, I want to talk about one that you might come across a lot but might not know about. That would be the idea of the “Gold Standard”. There are two potential meanings to this phrase.

One of the meanings has general conversational use that you might come across in any particular subject. The other meaning actually has to do with physical gold and how it relates to currency. I’ll briefly mention both, but I’ll obviously talk a lot more about the second one.

Older Americans are more likely to know about the gold standard as it applied to economic policy, but Americans of any age have likely heard people saying the country should go back to it. I’m not going to venture into that, but I will help you understand what that idea means. The more you know, the better off you are.

The Conversational Meaning

The idea of something being a “gold standard” can be applied to many different industries. It might be something you hear a doctor say, for instance. If you need treatment for a condition, there might be a particular set of medications or procedures that are referred to as the gold standard for that particular problem.

The gold standard idea might also be applied to particular professionals or even organizations. Within a particular genre of music or sport, an entertainer or athlete might be called the gold standard everyone else is compared to. I have certainly been known to refer to Goldco as the gold standard for the precious metals broker industry at times.

The Economic Meaning

The gold standard was a time when gold was used for international trade between countries. Physical gold was used to settle balances and differences in trade instead of paper or fiat currency as they are now. The amount of currency a nation had was based on how many physical gold reserves the government of that nation had.

The primary idea behind this was the prevention of inflation. The economic policy also dictates that deflation should be avoided, too. Using gold as a limitation on economic policy often did prevent inflation, but the restrictions were often so severe that political turmoil and economic unrest were also possible.

The idea of the gold standard came to being and fruition between 1696 and 1812, particularly among European nations. England became the first to officially embrace the gold standard themselves fully in 1821. It was an international standard by 1871.

It remained the international standard until World War I started in 1914. A need for more economic flexibility put the system into serious doubt. The failings of the system made themselves evident through the Great Depression and World War II.

The gold standard was attempted again after WWII until the 1970s. At the time, the rising costs involved with the Vietnam War along with susceptible foreign debt holdings put the country at risk of serious deficits. While the gold standard was supposed to protect from inflation, it was actually inflation that drove President Nixon to abandon the vestiges of the international system for pure fiat currency.

The gold standard did provide stability in many ways, especially in how it prevented governments and officials from manipulating monetary policies in ways that might not be healthy for a country. Then again, it also was seriously inflexible and left the same governments from being able to deal with economic matters that needed attention. There were also concerns about foreign nations holding currency reserves cashing in at once and crashing the national economy.

Should We Go Back?

So, now you know what the gold standard was. You also know that we haven’t been on it for quite some time. That doesn’t mean there aren’t those who advocate for us going back to it as a country, however.

Should we do this? I’m not really going to go into that. It’s as much a political debate as it is an economic one, and my focus is on helping you as an investor.

While the gold standard might not be the basis for our national currency anymore, I’m here to remind you that gold is still around. You can still benefit from owning or investing in it. You can do that as a private owner of bars and bullion, or you can do it through a gold IRA.