Gold and Currencies: 3 Interesting Facts
Ah, the awe-striking aesthetics and power of yellow metal. Even though gold is no longer the primary currency, it continues to have a significant influence on the value of money.
Moreover, there’s a robust correlation between the value of currencies and the demand and price of gold. Ahead, we’ve discusses five exciting features and facts about the two investors’ favorites.
Gold as a Support for Fiat Currencies
Taking a trip back to the days of the Byzantine Empire, gold used to back up the fiat money—which, ironically, isn’t supposed to be supported by any physical commodity. The yellow metal had also been held as a reserve currency by many nations worldwide, for the most part of the 20th century.
Except for the United States, they “attempted” to divert their attention from gold when President Nixon abandoned the gold standard in 1971.
Until the ban, countries weren’t allowed to print the paper money unless they had an equal back up of gold reserves. Although it has been long since the abolishment of the gold standard, many economists believe that it should be enforced again as the U.S. dollar and other currencies become more volatile.
Gold as an Inflation Hedge
As the value of currency decreases and inflation increases, investors tend to shift their investments into buying physical gold. This shift happens because of gold’s inherent value and stability against financial crises, leading to a demand surge while the supply remains limited, ultimately causing the gold prices to rise.
According to economist Claude B. Erb, it’s not the devaluation of currency or other economic factors that increases gold prices; it’s the fear of investors who tend to run to gold during global financial breakdowns.
This trend has been observed throughout history—for instance, during the Great Recession (2008) and the Great Inflation (the 1970s)—and also during the present global economic downturn caused by the novel coronavirus outbreak.
Gold Imports and Exports Affect Currencies
Imports and exports have a significant impact on the value of any nation’s currency. An increase in imports results in currency’s devaluation, whereas a surge in exports tends to increase its value.
A country with high exports of gold or powerful gold reserves will experience a rise in their currency’s worth. It implies that net exporters of gold proliferate from skyrocketing gold prices as it leads to a trade surplus and helps them prevent trade deficits.
Keeping the gold-currency relationship and the current economic situation in mind, 2020 seems to be an excellent time to invest in gold coins. If you want to buy gold bullion bars and coins online, get in touch with Orion Metal Exchange—one of the best gold investment companies in the U.S.
Call us at1-800-559-0088 for free expert advice.