Gold in an era of unbacked currencies

Hindsight is 20/20. This timeless adage speaks volumes when it comes to your finances. Looking back at gold’s performance provided us with useful insights into making the right financial decisions in shaping our future.

Understanding gold requires an understanding of the US Dollar. Signed in 1944, the Bretton Woods Accord resulted in all commodities being priced in US Dollar, thereby establishing the Dollar as the ‘de facto’ global reserve currency. At that time, the US Dollar was still backed by physical gold by law.

In 1971 President Nixon ended the gold standard, ushering in an era in which all currencies were entirely unbacked by gold. Soon after, the fixed gold price was abandoned, leaving it to be determined by the market.

This new era of unbacked currencies has led to massively increasing public debt, in turn leading to a classic debt trap.

Looking at the supporting data, the following becomes clear to the keen observer: In order to escape the Debt Trap the US will engineer depreciation of the Dollar so as to repay debts in debased currency.

Due to competitive forces one can expect that all currencies will depreciate.

All except one – gold.