What is the Gold Standard?

Gold is one of the most sought-after metals in North America. This precious metal, however, is in much more than jewelry. While the price of gold still varies significantly based on demand, bars are still seen as a viable investment option for many people. Our currency hasn’t been backed by gold since 1933; however, worldwide demand makes it a valuable commodity.

What is the Gold Standard?

The gold standard is a financial term that refers to currency that is linked directly to gold. These currency systems often use paper money or coins that aren’t made from gold. Instead, the value of the currency in the global market is determined by the value of gold. The country using the gold standard also sets the price for the gold, as it often buys and sells gold at that price.

Very few countries still rely on gold standard monetary systems. In 1931, Britain stopped using the system and others quickly followed suit. The United States didn’t abandon the system until 1971, but they weren’t the last country to do so. Every once and awhile, countries try to revitalize the system using their massive gold reserves.

What Replaced the Gold Standard?

While currency still has strong ties to gold, most countries use fiat money. Fiat money is legal tender and values are set by the countries themselves. Because the money is not backed by a physical commodity, it is subject to inflation due to supply and demand. This gives government a greater control over value and supplies.

Fiat money can still be used internationally, however, exchange rates are often set by the country’s economic standards in comparison to others. These rates can change regularly, which puts some people at ease. Because commodities like gold or silver can be sold at fixed values around the world, some investors choose to have physical reserves.

Understanding Gold in Canada

While many countries still have massive amounts of gold stored in federal reserves, the Bank of Canada tends to keep a very negligible amount. The country only shares about 0.3-percent of the global gold supply. Instead of relying on precious metals, it invests in foreign currencies. Because of the insignificant amount of gold in storage and heavy reliance on other nations, Canada is often focused on building economic contingency plans and avoiding crisis.

Creating a Personal Gold Reserve

Many people have faith in their country’s currency, but they still want to diversify their investment portfolio. This leads them to creating their own personal reserve of gold to exchange in case of economic crisis.

There are several ways to invest in gold. The first is with gold bars and coins. To determine the value of the gold, the bar or coin is simply weighed. Most gold bars are crafted to be a troy-ounce, or 400 ounces, but they can vary quite a bit. Bars and coins can easily be molded into smaller sizes. This makes it possible to invest in gold a gram at a time.

The other option is to invest in jewelry. Because luxury items are always in demand, jewelry can often be bought and sold as needed. While there are more factors involved with selling jewelry, such as metal purity and design, local pawn stores are often able to help determine values.

The goal of investing in gold is to own currency that can easily be traded regardless of fiat money values. Gold can easily be traded internationally, even if the government is no longer using a gold standard system. There will always be a demand for high-quality, pure gold.

 

Looking to learn more? Contact us at Pinto Gold today!

Our Services