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Gold's current status as a risk asset challenges its traditional role as a safe haven. Its rise is driven by momentum and speculation, not intrinsic value or central bank actions.
The abandonment of the gold standard during World War I allowed countries to print money to fund the war, which would not have been possible if they adhered to gold's discipline. This shift marked the beginning of the end for Europe's dominance.
The Wall Street crash and subsequent deflation forced most countries off the gold standard in the 1930s, except for the United States. Roosevelt's New Deal made it illegal for Americans to own gold.
The gold standard, designed by Isaac Newton in the 18th century, was abandoned by the Bank of England in 1798 because it couldn't afford to redeem its notes for gold. This marked a significant shift in economic policy.
In 1971, America came off the gold standard due to excessive spending on the Vietnam War and President Johnson's welfare programs. This led to a situation where the US didn't have enough gold to back the dollars it had printed.
According to surveys, 95% of central banks around the world are planning to expand their gold reserves over the coming year, driven by loose monetary policy and concerns about currency debasement.
When gold was money, the only way to create cash was by mining gold, a dangerous and expensive endeavor. Now, with no gold standard, money can be created through various means, such as printing money and issuing debt.
Since the final vestiges of the gold standard were abandoned in 1971, the supply of money has ballooned. This has led to more money chasing the same amount of goods, contributing to the rise in prices over the years.
Gordon Brown's decision to sell two-thirds of the UK's gold reserves at the market's bottom is considered one of the worst financial decisions in history, haunting him as gold prices rise.
The gold sovereign, introduced in 1816 after the Napoleonic Wars, was the most successful coin in history. Today, it takes 650 modern pound coins to buy what one old pound coin was worth, illustrating the extent of currency debasement over time.