Sunday, 16 September 2012

Rise and Fall of the Gold Standard, 1.5

During the 19th century, the gold standard came and conquered Europe (and other parts of the world) like a storm. And even though in the end it fell - as it will be demonstrated in our post tomorrow, the metal itself still held in high esteem for historical, investment and aesthetical reasons. Check out the infographic below to expand your knowledge on King Midas's metal - and read about the principal reason of it's demise as an universal medium of exchange and other fun facts below the picture.


So what is the problem?

Reading through the information, you might already have a clue - the very simple reason for the negligence of gold as an universal currency is it's scarcity. Just as all the gold ever mined can't even finance the current US national debt nowadays, it couldn't do so back in the 1930's, during the Great Depression, and the inability of the FED to freely print money caused mass deflation (goods cost less over time) and prolonged the crisis substantially.

Gold fans, gold freaks

Just as not every country chooses to conduct an individual, targeting monetary policy,  central bank attitudes differ regarding the allocation of country reserves as well. Just consider the extreme examples above - China and the USA, the biggest economies of the world, chose to store respectively less than tenth and more than three quarters of their reserves in the 'eternal' metal. And they are both superpowers! This shows that while the decisions of central banks are in fact very important, yet not every decision is a game-changer.

Street gold vendors

Ever wondered why seemingly around 90% of leaflets you encounter during a walk in the city centre are about buying scrap gold, old family jewellery and silver? The answer is yet again scarcity. As mentioned above, an astonishing 40% of yearly gold usage comes from recycling, 1600 tonnes yearly. This means that you - by taking the leaflet and possibly selling eg. your late grandma's pair of earrings you never did really like, are actually contributing to the operation of the gold market and hence, in part the world economy. It was never this easy to become a philantrophist before, right?

Ask us in comments for other gold-related phenomena.

Other posts of the series:

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