Understanding gold would be incredibly difficult if you didn’t know its history. It’s one of the most important assets that humanity has ever used, transacted with, and stored for thousands of years. When you know a lot of history, you’ll realize that it never repeats itself completely, but it definitely rhymes.
No matter what’s happening in the world, there’s a high probability that it’s happened in the past at least once before. Studying the markets will give you the basic knowledge you need if you want to start investing more in gold and broaden your portfolio to other types of assets. Follow this page to read more https://www.reuters.com/business/russian-gold-miners-dig-ways-overcome-ukraine-impact-2022-03-30/.
Getting that prism of knowledge will help you understand the modern economy too. Every investor needs to go through the phase of learning to lay the groundwork and make educated guesses in the future. If you expect that something from the past is going to happen again, you’ll play your cards right and profit massively. If you find out the information later, that could be detrimental to your portfolio and your wealth overall.
A brief summary of gold’s history
For thousands of years, gold has been the primary precious metal of choice of different cultures. Ancient Egyptians covered their tombs with it, and their relics are still on display in modern museums. The Ancient Greeks did the same thing, and they thought that the metal was a gift from the gods because it resembled the shine of the sun.
Ever since then, humanity has tried to find a replacement for this incredible asset but with no success. Whenever a new currency was introduced, it failed. The same thing happened when governments, monarchs, and dictators wanted to devalue the currency. Whenever people mixed up their hands with the monetary economy and gold, it always resulted in a massive crash that affected entire nations. We’re going to take a look at the modern one.
The modern economic era
The United States was a part of the Gold Standard in the 1900s. This means that for every dollar issued, the country needed to have an equal amount of gold in its reserves. That worked perfectly until World War I messed things up, and countries started printing more monetary units compared to their reserves. That’s why, in 1933, the United States banned gold and requested a call-in. Click on this link to read more.
Everyone who possessed the precious metal had to bring it back to the bank and start using dollars instead. After World War II, there was the Bretton Woods agreement, which linked the dollar to gold and all other currencies to the dollar.
That didn’t work too because America wanted to print more money, which led to Nixon severing the connection between these two assets and going for a complete devaluation. His actions resulted in more than 12 000 tons of gold leaving the country and letting the dollar become a fiat currency. That essentially means that it’s not linked to anything real.
Instead, it’s linked to the trust of the people in the economy of the United States. You can find more info on the Cayman Financial Review story which goes into more detail. When this happened, gold was completely severed from its bonds and started to trade freely in the markets of the world. This increased the price fourfold in 1973.
As private investors started to stockpile their own reserves, the price went from 37 dollars to 120 dollars pretty quickly. At that time, the national debt was half a trillion, which pales in comparison to today’s 29 trillion. Soon after, inflation started to swing hard, and there were massive corrections in the stock market.
This raised the price of this precious metal to 200 dollars. Immediately after that, there were years of recession, and there was a downtrend in the niche of silver and gold. However, after 1977, the bull market started all over again. The all-time high got to 875 dollars in January of 1980. That’s almost thirty times your initial investments in a single decade.
Recessions, recoveries, and bull runs
Apart from gold hitting its all-time high in 1980, Ronald Reagan also became president. He wanted to make things a bit better, stagnate the economy for a while, and set interest rates at a staggering 19 percent rate.
This increase was unheard of at the time, which cooled the market significantly. This move was specifically designed to decrease the price of gold and stabilize the dollar, which resulted in a massive price decrease. Soon after that, prices bottomed down at 300 dollars per ounce and bounced back to 500.
Additionally, there were extremely high unemployment rates at that time, which resembled the levels during World War II. Inflation was rampaging, unemployment was high, and interest rates were the same.
These circumstances were perfect for jumpstarting the paper economy, which means that stocks and paper assets were supposed to rise. The debt was increasing, and it reached a staggering 2 trillion, which was expected by analysts and experts.
Soon after that, George Bush became the president of the United States, and he had to deal with one of the worst banking crises in history. The debt exceeded 3 trillion, the Soviet Union broke up, and there was a lot of uncertainty in the markets of the entire world. Additionally, West and East Germany decided to be connected together. During that period, the price for an ounce was moving between 330 and 435 bucks.
The bear market for precious metals was long, and it lasted all the way until September 11. That’s the date when the World Trade Center was attacked by hijackers, which set off panic in the entire world. No one knew what was going on, but there was one thought in the minds of all people. They had to buy gold because no one knew what was going to happen to the United States.
Not long after that came, the real estate crash, and the financial sector melted in 2008. These mistakes cost a lot, which quickly brings us to today. The pandemic was a massive hit on the entire global economy, and a lot of money was printed to ease the effects.
Creating money out of thin air is a bad policy since it leads to inflation, which devalues every currency. At the moment, the inflation rate is 8 percent, and it’s showing no signs of slowing down.
What should you do?
If you’re good at noticing trends, then you’ll probably see that this is quite similar to what happened in the United States during the 80s. The pandemic started a wave of unemployment, and only the wealthiest individuals in the world got the benefits.
All of the wealth pooled into the hands of a few people, leaving everyone trying to make something out of the situation. The countermeasures of the government just made manners worse, which hastened the entire process of economic degradation. For the average investor, exposure to precious metals is a definite must. It’s like learning arithmetic in math class. You can’t go far without it.
Hard money is something that’s always going to have value, and paper certificates are worthless when you remove borders. Gold knows no boundaries, and it’s not controlled by a single state. It’s a completely decentralized system since its worth is ingrained into the minds of every person.
Even the biggest skeptics and naysayers that claim that precious metals are worthless and barbaric will smile if you place bullion in their hands. Plus, if there was no intrinsic value in this sector, central banks wouldn’t be hoarding it like there’s no tomorrow.
It’s crucial to mimic the largest players in the investment world if you don’t want to be left out. The profit pie is big. Just make sure that you’ve got the assets that will ensure you a piece of it.