Gold vs. Currency

Financial experts tend to agree that the value of gold could skyrocket if the value of the dollar takes a plunge. As the nation’s economic crisis worsens, the chances of this happening increase. Gold, a physical commodity, has value against currencies all over the world. So, in the midst of a global economic crisis, the value of gold would increase as the metal becomes a safe haven for value and worth.

The United States Department of Treasure said in a statement released in July that due to the budget shortfall that while the dollar continues to plummet that gold is now the exchange of choice for many private investors and may very well be in the end America's best chance of stabilizing the economy. However, due to record spending gold is actually becoming more valuable as the dollar, yen, pound and euro fluctuate in the current economic market.

Because of this, both coins and bard made of gold are traded widely in liquid markets and have remained for many private citizens and governments as a store of private wealth used to bolster their economy. European Central Bankers in 1999 signed the Washington Agreement on Gold which said that gold could not be used for purposes of speculation.

The Gold Standard

The monetary system known as the gold standard is a common method of exchange as most paper currency can be used in lieu of specific quantities of gold. Currently, the gold standard is not used by any government as it has been replaced by fiat currency, or legal tender - such as the American dollar or the European Union euro.

The theory behind the gold standard is one that embraces the idea that increases in maximal governmental purchasing power during exigent wartime circumstances require a certain amount of post-war deflation's which could not occur without monetary institutions such as the gold standard.

In essence, the gold standard can limit the governments ability to inflate costs through an excessive printing of paper currency, though it may reduce uncertainty in some international trade markets for the interim by providing a fixed pattern for those exchange rates. It is under the classical definition of the gold standard held by the international community that price level hikes, devaluations, and other disturbances in one country may be wholly or partly offset by an automatic balance adjustment mechanism. This is known as the price specie flow mechanism.

The overarching problem with the gold standard is that the gross amount of gold mined is an estimated 142,000 tons; now with the assumption that gold would price for $1,000 an ounce or $32,500 per kilogram than the value of all the gold mined to date would only add up to just over $4.5 trillion while the current amount of money in circulation within the United States alone is more than $7.6 trillion. If there was a shift back to the gold standard that would herald an unprecedented rise in the current value of gold.

Therefore, monetary policy would henceforth be determined by the amount of gold a state could acquire or buy, and thereby creating inflation or deflation depending on whether production rates rise or fall.