Why does gold have a stable price?

Nowadays, the demand for gold, the amount of gold in the central bank's reserves, the value of the US dollar, and the desire to keep gold as a hedge against inflation and currency devaluation help boost the price of the precious metal. Gold is a valuable resource that humans have coveted for centuries. While the price of gold can be volatile at times, it is generally considered a safe and intelligent investment. For those looking to invest in gold, there are many gold IRA firms that can help them make the right decision for their wallet. There are a few things that those looking to invest in gold should remember and some misconceptions that every investor should be aware of.

However, gold reserves reduce confidence in the United States' ability to exchange its currency for gold. The gold standard was a commitment by participating countries to set the prices of their national currencies in terms of a specific quantity of gold. Since new gold production would only add a small fraction to accumulated stocks, and since the authorities guaranteed the free convertibility of gold into money other than gold, the gold standard guaranteed that the money supply and, therefore, the price level, did not vary much. Despite the fact that countries such as India and China consider gold as a store of value, people who buy it do not trade it regularly (few pay for a washing machine by handing over a gold bracelet).

In the classic gold standard, which lasted until 1914, gold was officially money and therefore the unit of account. In addition, because the gold standard gives the government very little discretion to use monetary policy, economies that follow the gold standard are less able to avoid or compensate for monetary or real shocks. The gold standard broke during World War I, when major belligerents resorted to inflationary funding, and was briefly reinstated from 1925 to 1931 as the Gold Exchange Standard. The United States, although formally had a bimetallic pattern (gold and silver), switched to de facto gold in 1834 and de jure in 1900, when Congress passed the Gold Standard Act.

If, for example, the central bank of France wanted to prevent the inflow of gold from increasing the country's money supply, it would sell securities in exchange for gold, thus reducing the amount of gold in circulation. These are publicly traded gold miners and suppliers, and ETFs have a positive correlation with the price of gold. Under this standard, countries could hold gold reserves or dollars or pounds, except for the United States and the United Kingdom, which only had gold reserves. Because gold maintains its value, you can compensate for the loss of purchasing power of your dollars by investing in gold.

Now that you understand that gold is a store of value, you may be wondering how the price of gold reacts to various economic conditions. This version broke in 1931 after Great Britain left gold due to enormous outflows of gold and capital. Despite the fact that no country currently follows the gold standard, many countries still maintain large gold reserves in the event of an economic collapse.