The Correlation Between US Economy and Investing in Gold

One of the most important things you should remember is determining a current US economic health by checking out the gold prices. Therefore, as soon as the economy reaches an unhealthy moment, the prices rise as a result.

That happens because investors tend to purchase it as protection against potential inflation and financial crisis. On the other hand, if you notice that its value is at its minimum, it means that you should invest in real estate, bonds and stocks because the economy is healthy.

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It is vital to understand that value of gold depends on the beliefs of commodity investors. Therefore, if the issues are with the regular economy, they will start to buy it to protect them against a volatile market.

The same thing goes another way around because they tend to buy less of it if the economy is doing well.

If you analyze the precious metal values in the last fifty years, you will determine the situation of the US economy.

Everything Started With the Gold Rush

Back in the day, US citizens and people worldwide started to run across America to find gold.

Everything started when they found it in 1848 at Sutter’s Ranch, which lead to a thought that everyone could find it.

However, things had changed twenty years later, when Salmon Chase, the US Treasury Secretary, started to print paper money backed by it. We know this particular moment as the standard, in which paper was just receipts that you had gold inside the treasury.

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The Great Depression

In 1934, prices went from twenty dollars for an ounce to thirty-five. Even though the Federal Reserve wanted to maintain the standard that led to severe problems in the general economy, it led to the Great Depression.

Back in the day, the stock market crashed to a point where numerous banks from the US failed. That is when people started to purchase physical alternatives to protect against volatile currency and inflation.

Even though a few countries in Europe decided to avoid the standard, the US still used it as an economic parameter. Everything changed when Franklin D. Roosevelt signed Gold Reserve Act, in which he made it illegal for people to own gold in numerous forms.

The act encouraged and required people to exchange their bullions, numismatics, and coins for twenty dollars per ounce. It allowed the government to return the amount of it in the reserves, which created a healthier environment for everyone.

Its Value Tripled in a Single Day

When it comes to significant moments in the history of the gold standard, we have to mention when President Richard M. Nixon decided to break it completely, which led to the dollar’s detachment from the reserves and standard.

It created a moment when value increased three times from forty-two to one-hundred and twenty dollars for an ounce. It was 1971, and an Act stated that the central bank should stop redeeming the dollar-based on its value.

Therefore, foreign banks could no longer exchange dollars for this particular precious metal, which made the dollar much weaker in general. The main idea was to end the inflation that happened due to wage-price issues, which lead to the complete abandonment of standards.

Gold Hits the Ultimate Peak

During the economic crisis that happened in 2011, it reached its peak or $1,800 per ounce, which meant that the US economy was in turmoil. In this particular moment, the US debt doubled from 2009, which created an entirely different perspective.

Two years back, gold reached surpassed thousand dollars for the first time, while the dollar declined as a result. You can see that the amount almost doubled in 2011, which created an opportunity for investors to earn money by buying precious metals.

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2020 Recession

Finally, last July, gold reached its highest amount from the very beginning. It was $1880 for an ounce, while two months later, it surpassed two thousand dollars, which was a record that happened due to the COVID-19 pandemic.

As you can see, we are currently in economic downfall, which is something we can analyze by checking the gold value in the last hundred years. By analyzing, we can determine and predict what may happen in the future, which is vital to do as an investor.