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During the Roman Empire, an ounce of gold purchased a well-off Roman man his toga, leather belt and a pair of sandals. Today, one ounce of gold will still buy a man a suit, a leather belt and a pair of shoes.
Throughout history, paper currencies have come and gone. During their short lives, paper currencies inflate and deflate wildly in value with circumstances and man’s folly. But gold is not a thing of man. It has real, intrinsic and enduring value.
The Dollar’s Value Continually Drops Relative to Gold
From 1834 to 1862, U.S. currency was backed by gold. This was known as the “gold standard." The fact that currency was back by real gold steadied the value of the dollar. Each bill was a certificate that could be exchanged for real gold.
During the Civil War, politicians abandoned the gold standard to print extra money to pay federal bills. The price of gold increased significantly. Congress returned to backing U.S. currency with gold (and silver) after the Civil War.
Then, in 1971, President Richard Nixon moved away the gold standard permanently and made the U.S. dollar a fiat currency – only paper and numbers, not backed by gold, other metals or anything of real value.
Many believe that the Federal Reserve and U.S. Treasury control and manipulate the money supply, causing constant inflation and decreasing the dollar’s purchasing power. U.S. dollars saved today will not buy the same amount of goods and services in the future.
After 1971, by some estimates, the value of gold rose about 3,000% higher than the value of the U.S. dollar rose. In the past, the price of gold has increased in one decade by as much as 400%. How did this happen?
Unlike stocks, which increase in price due to earnings growth, gold mainly increases in price due to the devaluation of our currency.
When U.S. politicians fail to balance the U.S. budget, the Federal Reserve prints money to pay government bills. The new dollars drive up the price of gold, because gold cannot be mined as quickly as new dollars are created.
Precious metals are MONEY. And while most investors value gold as an inflation hedge, gold holds value because it is a limited (even scarce) resource. Base metals cannot be alchemized into gold. They can't be multiplied by a printing press, as paper money can. They must be mined out of the earth. Gold is further limited and value-preserved when the trade supply of gold shrinks, such as when people in some parts of the world purchase gold jewelry and hold on to it a way of preserving their savings. Gold's scarcity makes it more valuable.
In times of inflation, the value of the paper dollar decreases, which increases the comparitive purchasing power of gold and other precious metals. Unless the United States balances its budget, reduces its deficit, and lowers its national debt, we believe gold will continue to rise in price and remain an important part of every American’s portfolio, including for some investors the rolling over of all or part of an existing IRA, 401(k) or other retirement plan into a gold IRA. With the Augusta® Gold IRA, you not only get the inflation-hedging benefits of precious metals investment, you also get all of the advantages of working with the industry’s premier precious metals IRA provider. Learn more about gold coins and gold bullion here.