All You Need to Know About Gold

Only time will tell whether the world will repudiate the U.S dollar if we create too many of them in an attempt to bail out our economic woes. Keep an eye on the gold market for your answer.

Part 2. A short Savage history of gold and the U.S.

America has an interesting historic relationship with gold. A century ago, our country (along with England, France and Germany) backed its paper currency with gold, meaning the paper money was interchangeable with gold at an official price. Then in 1933, during the depths of the Depression, the United States went off the gold standard. The government demanded that its citizens turn in all their gold bullion coins in exchange for paper currency.

President Roosevelt's Executive Order in 1933 proclaimed a national emergency, and called for the "requisition of all privately held gold in America," with a penalty of "up to 10 years in prison and/or up to a $10,000 fine." Some numismatic, "collector" coins were exempted, but gold bullion coins and bars were confiscated.

In 1946, after World War II, global powers created a fixed international exchange rate, based on the ability of major central banks to exchange gold with the United States Treasury for a fixed price of $35 an ounce. It was called the "Bretton Woods" agreement. The dollar, implicitly backed by the gold held in Fort Knox, became the world's medium of exchange.

This system of fixed exchange rates lasted until Aug. 15, 1971, when President Nixon "closed the gold window," just as France, under Charles de Gaulle, decided that it would rather have bullion than the paper dollars that the U.S. was starting to print excessively. At the same time, Nixon imposed wage and price controls, in a fruitless attempt to control inflation, then running around 4% annually.