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The current gold rate has been “rising,” but what does that really mean?  Unfortunately, we do not use gold as a medium of exchange.  We do not even use a proxy for gold as we trade, barter, or swap goods and services for other forms of value.  So, how to we appreciate what has happened to the “price” of gold?  And how do we explain the rush into gold funds by the general public?

Current Gold Rate Understood Through Manipulation

The current gold rate can be examined as a function of the given native fiat currency.  Let’s look at an undeniable lesson from history.  In 1933, U.S. President Roosevelt pulled off an audacious mandate not substantially different from any other dictatorial mandate.  Roosevelt essentially demanded that private, sovereign individuals had to “sell” their gold bullion to the U.S. federal government.

What happened next was amazing.  The government offered $20.67 an ounce for the gold you and I were forced to turn in.  Months later, in January 1934, the per ounce price of gold was raised to $35 per ounce, with the government making 75% in short order.  It would have been nice to own gold.  Unfortunately, the people held funny money, and they witnessed a loss of more than two-thirds in their currency’s value and concomitant purchasing power.  Here, the value of gold is obvious when compared to holding paper.

Current Gold Rate Understood Via Scarcity

What comes around, goes around.  Just as the U.S. government claimed all gold for itself through totalitarian dictate, other countries of the world eventually claimed U.S. gold through rightful assertion.  See, the U.S. Dollar was appropriately pegged to gold, indeed used as a proxy for it, for decades following the great gold confiscation.  Foreign central banks were able to exchange Dollars for gold.

For a while, this was not really an issue and gold reserves remained high.  So long as the United States had a trade surplus, there weren’t many countries with piles of Dollars that begged for redemption in gold.  However, this all changed when France started unloading U.S. Dollars in 1965 and began putting a dent in U.S. gold stockpiles.  He urged other nations to likewise redeem Dollars, and U.S. gold holdings went to the lowest levels in nearly 30 years.  The then current gold rate was lifted to $42 an ounce to stop the bleeding, but it didn’t work and gold continued to disappear.

Current Gold Rate Understood By Way Of Unavailability

As foreigners justifiably plundered the U.S. stockpiles of gold, the U.S. demonstrated plainly whether it more greatly valued it’s fiat paper money or gold bullion.  The U.S. could not cure the entrenched trade deficit.  It was looking at devaluing the Dollar.

Rather than doing so, and properly acknowledging the weakening currency, President Nixon took the bold position of shutting off the gold redemption option on August 15, 1971.  All the sudden, Dollars were no longer able to be swapped for gold.  By then, however, half of U.S. gold was gone.  By simply making gold unavailable and compelling the retention of Dollars, the message was loud and clear that, regardless of the current gold rate, gold was the superior form of money.

Current Gold Rate Understood Relative To Funny Money

With the U.S. Dollar no longer anchored to anything of inherent value, the only natural conclusion is that it would decrease in value vis a vis the bullion price.  Indeed, if there is no tangible connection between gold (or any other real item of value) a piece of paper with numbers on it, where can it derive value?  We place more value on a $100 bill than a $10 bill simply because it has an extra “0” on it, not because of anything substantial.  The piece of paper is identical.

When only paper is involved, “Dollars” can be, and have been, printed at the push of a button.  Can we really just print enough money to make everyone a millionaire and everything be okay?  Not exactly.  When there is an abundance of something, the increased supply necessarily dilutes demand and makes that thing worth less.  When taken to the extreme, it becomes worthless.

Since the time of eliminating gold redemption, and the Dollar simply being worth the value placed upon it at any given time, its worth has diminished at a disturbing rate relative to the current gold rate.  And it is valued in the market at problematic levels.  Inflation-adjusted figures suggest a Dollar is now worth just 18 pennies, rather than the 100 you could get in 1971.  Other calculations show the Dollar is worth only about 1% what it was a hundred years ago.  By contrast, gold is stable, and it’s not surprising to see the masses pour into ETF gold vehicles.  In fact, in Dollar terms, the current gold rate shows that purchasing power has increased against the Dollar.