May 12, 2008
Gold prices are determined by many things but the gold standard is not one of them. Historically, the price of gold and the gold standard were tied to each other. The two terms are dissimilar and have no correlation to one another in today’s economic marketplace. One term has to do with the value of the currency used and the other with the current market price one can equitably expect to buy or sell an ounce of gold on the commercial market.
If you’ve heard the expression “gold standard,” but were never sure about its meaning, it basically refers to a country’s use of gold to back their currency. In 1900, the United States passed the Gold Standard Act and gold remained our standard until the 1930s. Before gold was used as a standard, some countries used silver as a standard in the 19th century. When a country used a standard based on gold and silver in combination, this is called bimetallism.
Under a gold standard, a country’s currency could be converted into gold for a certain price. Every coin or bill was equivalent to a certain amount of gold. Using a gold standard can create a certain amount of economic stability. At the same, it was that stability that made countries like the United States turn away from the gold standard. The gold standard does not change with the times. Being backed by gold means that the Federal Reserve is quite limited in what it can do to try to correct any destabilizing forces that deliver a blow to the economy.
At one time the price of gold was fixed at $35 and ounce. This is no longer the case in the United States. Our money is not tied to gold and the price of gold is no longer fixed. You can research gold prices, but they do fluctuate, so when you go to a gold buyer it is possible that you can sell your gold at a price that is higher than what you thought it would be.