Correlation Between the U.S. Economy and Gold Information

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When it comes to gold prices, you should know that they reflect the current economic health of the USA. The experience states that when the gold prices are high, it means that the economy is not healthy.

The main reason why investors purchase gold is as protection from inflation or financial crisis. Therefore, it is logical to say that when gold prices are low, the economy is growing and vice versa.

You should check out this link: to learn more about investing in gold in general. At the same time, the prices tend to go up because investors believe that the economy is unsteady, which is why they wish to relocate money into a more secure commodity.

The same thing works if the economy is going well because they will not need a hedge against inflation so that the prices will go down due to lower demand. As you can see, you will be able to analyze the current economy by reviewing the gold prices in the last few years.

Let us see why that is happening in the first place is.

Everything Started With the Gold Rush

At Sutter’s Ranch in 1848, people have found gold, and that inspired the Gold Rush that unified entire western America. People went to California to become rich and wealthy, and that is the first time the USA started to combine gold with currency.

Twenty years after, the U.S. Treasury printed the first paper currency, which was backed by the gold amount that citizens had. That is when the gold standard started, which is the critical factor that can help us determine the importance of this particular commodity.

However, the Great Depression lead to a situation where the prices went from $20 for an ounce to $35 in five years. The economy continued to worsen while the Federal Reserves wanted to maintain the gold standard or paper currency backed by gold.

That lead to the Great Depression, which started with bank failures and the stock market crash in 1929. Therefore, instead of spending, people began hoarding gold to protect them.

Even though countries in Europe understood that the gold standard is bad for the economy, the USA still wanted to exploit it. Everything changed in 1934 when President Roosevelt signed the Gold Reserve Act, which made it illegal for people to own gold in all forms.

Learn more about the Great Depression by clicking here.

Therefore, people had to exchange the hoarded remains for paper money, and that is how the federal government increased their reserves.

They have raised the price five years later to $35, which leads to increased printing of paper money and that, which boosted the economy and created a healthier atmosphere.

Prices Tripled

The most significant moment when we analyze the gold price history is the situation when President Nixon completely detached the dollar from the standard. That is when the value spiked from $42 to $120 in a single day.

President created a situation in which central banks stopped redeeming the dollar for its value, and it was impossible to exchange dollars for gold. The main goal was to reach the point when the dollar is weaker than this particular commodity.

He also wanted to end the inflation that happened due to price controls that occurred during his presidency.

The Peak Value

After the horrific financial crisis in 2008 and Eurozone, the debt crisis that created uncertainty in the USA, the value of gold reached the highest number from the moment it became commodity: $1,895 per ounce.

To understand the incredible jump, you should know that it doubled from 2009 when it reached $1000. In September 2009, gold reached over a thousand dollars milestone, and as the dollar declined, people wondered whether they should relocate their assets.

Also, the belief that gold will protect them against dollar fluctuations, which lead to the high demand for it, which ultimately affected the overall value and brought it to the highest number since the very start of the stock market.

However, after the market returned to its rightful place and started to emerge from the horrific depths of the 2008 financial crisis, the gold value began to fall, which was the sign that the economy is becoming healthier than before.

Therefore, you will be able to track different values it had to determine the correlation so that you can invest appropriately in the future.

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