A short Savage history of America and gold vs. paper money
America has an interesting relationship with gold. A century ago, our country (along with England, France and Germany) backed its paper currency with gold, meaning the paper was interchangeable with gold at an official price.
During the Great Depression, the U.S. went off the gold standard. President Roosevelt's executive order in 1933 called for the "requisition of all privately held gold in America" with penalties of "up to ten years in prison." Some "collector" coins were exempted, but bullion coins and bars were confiscated, exchanged for paper currency.
In 1946, at Bretton-Woods, global powers created a fixed international exchange rate, based on the ability of major central banks to exchange gold with the U.S. Treasury for $35 an ounce. The dollar, implicitly backed by gold in Fort Knox, became the world's medium of exchange.
This lasted until Aug. 15, 1971, when President Richard Nixon "closed the gold window" -- just as France decided it would rather have bullion than the paper dollars the United States was starting to print excessively. At the same time, Nixon imposed wage and price controls as U.S. inflation topped 4 percent.
It wasn't until Jan. 1, 1975, that Americans were again allowed to own gold bullion coins and bars. At the time, gold was trading in global markets at around $170 an ounce. Just five years later, it soared $800.
Since August 1971, there has been no official link between the dollar and gold. Gold owned by the government was officially priced at $38 an ounce in 1972. In February 1973, the official price was raised to $42.22 an ounce, where it remains! Currently, the Mint says Fort Knox holds 143.7 million ounces of gold.
This brief history lesson is necessary, I think, to understand why many feel gold is a wise investment at a time when government is creating paper money out of thin air. They remember it was only 37 years ago -- enough time for a generation to forget -- that foreigners decided they didn't want to hold U.S. dollars.
Terry Savage