At the beginning of August, the spot price of gold reached another all-time high. Since the 1930s, the US dollar has lost 99% of its value against the precious metal.
A world reserve currency is supposed to be higher at storing value. However, even through unlimited money printing, the US dollar has been unable to compete with the metal.
In 1932, the price of gold was $20.67 an ounce. A week ago, its value reached $2,067. That’s a 99% decrease in the value of the dollar against gold. Other reserve money, such as the British pound and the Japanese yen, have seen a worse decline. The yen has dropped by 99.98% of its value to gold in 100 years.
The yellow metal is the only financial asset globally accepted without counterparty risk. In 1971, after the gold standard was abandoned, the precious metal maintained its role due to its immutable properties.
Central banks worldwide continued to hold on to their gold, despite its price reaching all-time highs. This is due to a monetary principle Gresham’s law, which states that “bad money drives out good.” If there are two kinds of commodity money in circulation, the more valuable one will gradually disappear. Hence, as gold rises, central banks are more inclined to accumulate the precious metal – good money and spend bad money – the currency with depreciated value.
The price of gold will resume increasing
As the value of gold increases over time, it mainly compensates for the devaluation of fiat currencies against goods and services. In other words, the value of the yellow metal increases in the same proportion that consumer prices increase. Gold even shows a trend of growing purchasing power.
According to another theory, solid money, such as gold, should increase its purchasing power. Technological development makes producing goods increasingly cheaper.
Analysts think that the price of the precious metal will continue to rise. Moreover, it will be part of a new international monetary system. Furthermore, central banks are likely to degrade their currencies much more in the next few years because the world has never been in such massive debt.