Partly because the economy remains in dire straits, the gold standard is gaining renewed exposure. A lot of people have begun to look at our country’s monetary policy as misguided; calls for a sound money system are growing. With this in mind, it’s worth taking a few minutes to explore the gold standard in the context of how its abolition influenced the price of gold.

Below, we’ll review a time when the gold standard was still in effect. You’ll learn what it meant, and how it affected the price per ounce. We’ll then take a look at the introduction of fiat currencies, and the connection between inflation and the instability of the price of gold. The following discussion leads to the question: should you sell your old jewelry and scrap gold pieces?

When The Price Of Gold Was Static

Loosely defined, the gold standard was a monetary system in which the value of a unit of currency was tied to a specific quantity of gold. The quantity was typically expressed as a measurement of weight. For example, the U.S. might have defined an ounce of gold as being worth $500. Without the ability to arbitrarily print additional dollars, the price per ounce remained relatively static.

When other countries followed a similar monetary system, it was possible to trade goods according to the gold standard set for each country. For example, suppose the U.S. determines that an ounce of gold is worth 500 dollars, and France determines an ounce is worth 50 francs. It would follow that 10 dollars would equal 1 franc. The trading of goods could occur based on that valuation.

Lacking the ability to print dollars (or, francs), governments were prevented from excessively inflating the money supply. Thus, currency exchange rates of gold standard countries remained fixed, and the relative value of gold remained constant. This meant a piece of gold jewelry valued at $50 in 1850 could be expected to attract $50 in 1890.

This changed in 1933. A law signed by President Franklin D. Roosevelt made gold ownership (outside a few specific uses) a crime. It was the beginning of the end for the gold standard, and in 1971, President Richard Nixon put the final nail in the coffin. The country officially embraced a fiat money system.

The Nature Of A Fiat Currency

A fiat currency is essentially valueless. Its value is not linked to any objective standard, such as an ounce of gold. Instead, it fluctuates according to the laws of supply and demand. The supply and demand for a unit of currency, and the supply and demand for any given good causes the value of a base unit of currency to change.

Recall with a gold standard in place, governments were prevented from inflating the supply of money. With the abolition of the gold standard, governments could inflate – or contract – at will. This has given rise to perpetual price inflation, including in the price of gold.

How Inflation And The Price Of Gold Are Connected

When the supply of the currency increases, it takes additional units to purchase any given good. For example, suppose the aggregate supply of dollars is 100, and an apple cost $1. If the supply of dollars were suddenly doubled to 200, the price of an apple (assuming the apple supply remains constant) would rise to $2. This is price inflation.

Gold is a commodity good, similar to an apple. Its price reflects the number of dollars (or any currency) required to purchase a specified amount. When the supply of dollars rises, or confidence in the dollar’s exchange value plummets, the price of gold increases. This is what we have witnessed in recent months as the price per troy ounce has skyrocketed.

Is It Time To Sell Your Scrap Gold?

With the price of gold at an all-time high (or nearly so after mild pullbacks), is it time to sell your old gold jewelry and other pieces? This depends on your outlook for the dollar. If you believe the monetary supply will increase in the near future, holding your gold may be wise. On the other hand, if you suspect the supply will contract, now is the time to sell.

Here is what we know for certain: the price of gold is at historic levels. Many analysts suggest a fall in the price is around the corner. If you agree with them, find a trustworthy refiner, and sell your scrap gold online.

Author Bio: A reputable gold refinery for receiving top dollar for all your scrap gold sales can be found at Refinity.com. For all your sell jewelry and sell gold needs visit Refinity!

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