Why is the dollar the only value that is not backed by a national gold reserve?

Understanding Gold’s Relationship to the U.S. Dollar

Raw gold for sale , The United States dollar has been around since July 6, 1785. That’s when the Continental Congress authorized the new currency. Since its start, the U.S. dollar’s success has been tied to precious metal reserves. Over time, fiscal policies have created a sharp divergence in total purchasing power between $1 and a troy ounce of gold. The U.S. dollar abandoned the gold standard in 1971 under President Nixon. Now, the fiat currency derives its value based on trust instead of a tangible asset. raw Gold for sale and the dollar are still correlated, and this analysis will explore the past and current relationship between gold and the U.S. dollar.

Precious metals used to back the dollar For most of its history, the U.S. has used precious metals to peg the value of the dollar. When the dollar was first distributed in 1785, it derived its value from silver reserves. The U.S. dollar briefly derived value from gold and silver reserves, starting in 1972, when it had different exchange rates for each of those precious metals. However, in 1870, gold became the only precious metal backing the U.S. dollar. Government policies around gold changed based on the times. The U.S. tightened its gold supply during both World Wars, highlighted by President Franklin D. Roosevelt’s Executive Order 6102. This order forced all Americans to give all of their gold reserves to the Federal Reserve and receive the equivalent fiat currency in return.

Gold’s current relationships with the U.S. dollar

The government stopped using gold to back the dollar on Aug. 15, 1971, when President Nixon made the announcement amid money supply and economic growth outpacing the amount of gold reserves that made up the gold standard. The U.S. dollar has been backed by trust and goodwill ever since. When the U.S. dollar was backed by gold, the fiat currency would experience sharp periods of inflation and deflation. Now, the U.S. dollar has endured steady inflation growth without much deflation. Gold’s current relationships with the U.S. dollar , How to safely invest in gold right now

Since the federal government stopped using gold to back the dollar, the purchasing power of a single dollar has dropped considerably. Fiscal policies like low interest rates and increased government spending manipulate the money supply, often increasing it in the process. However, the government can’t push any levers to change the gold supply. Only miners can do that by extracting more gold from the Earth. Since the dollar’s value steadily decreases while gold retains its intrinsic value, it eventually requires more dollars to buy a troy ounce of gold. Investors have seen this trend play out for years. Raw Gold for sale is up by more than 75% over the past five years. You can also interpret that as the U.S. dollar losing more than 75% of its value relative to gold over the past five years. The U.S. dollar continues to lose value relative to gold, and that’s part of the reason investors have been accumulating the precious metal. Many central banks have also been stockpiling their gold reserves as their fiat currencies continue to lose purchasing power. This trend is likely to continue as the national debt continues to spiral. The newly-minted U.S. Department of Government Efficiency (DOGE) has been formed under incoming President-elect Trump’s next administration to attempt to mitigate national debt, but Social Security, national defense and Medicare make up more than half of the total expenditures. For those reasons, as well as increasing interest payments, it will be difficult to get the national debt under control. Even if DOGE works, lower interest rates should continue to propel gold past the U.S. dollar. Copper wire scrap for sale

How investors can approach gold and the U.S. Dollar

Investing in precious metals like gold and silver can mitigate silent losses incurred due to inflation. The rate of inflation is likely to increase as the U.S. faces an unsustainable federal deficit each year, which at the time of writing stands at $36.245 trillion. Storing cash in gold offers protection, and it’s no wonder that many central banks are buying Raw gold for sale in tandem. However, investors shouldn’t concentrate all of their holdings into just one asset class. Diversifying into stocks, real estate and other assets can lead to more returns by helping investors capitalize on more opportunities. Expert opinions vary greatly, but the common consensus is to have anywhere from 5% to 10% of your portfolio allocated toward alternative assets like gold. The precious metal becomes more valuable for older investors who are more focused on preserving their wealth than taking risks. Retirees don’t have as much time to recover their losses, so accumulating precious metals like gold and silver can be a prudent move.

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posted by losclient
May 21, 2025

How to safely invest in gold right now

Gold bars for sale investing has seemingly been in the news on a daily basis in recent years. Whether that was due to its well-known ability to hedge against inflation, diversify portfolios, a surge in investing interest, or simply thanks to a consistent, record-breaking price run, it’s been difficult to avoid news about gold.

And investors who got started with the precious metal as recently as 2024 or even early 2025 have seen a substantial return on their money. With gold starting 2024 priced at just $2,063.73 per ounce, it now sits at $3,250.56 for the same amount – a remarkable 57% increase in barely 18 months. With inflation still a concern for some Americans and the steady value gold offers in the face of this uncertainty, those who have not yet got invested in the yellow metal may be considering a move now.

But gold doesn’t work like many other assets and it comes with risks that will need to be strategically managed, particularly in today’s unpredictable economic climate. This doesn’t mean that a gold investment should be avoided (its benefits are especially timely now), but it does mean that investors considering the metal should first familiarize themselves with the safe ways to invest in gold right now. Below, we’ll examine three ways to do so.

Start by exploring your top gold investing options here.

How to safely invest in gold right now

Here are three ways to benefit from a gold investment without having to take any unnecessary risks right now:

Limit your investment

The traditional gold investing advice of limiting gold to a maximum of 10% of your overall portfolio is still applicable now, even with all of the changes in the gold market. So don’t be tempted to overinvest while the price of the metal is on the rise. Keep gold as a small but important portion of an otherwise well-diversified portfolio. This will not only allow you to benefit from the protections gold can provide by maintaining and frequently rising in value over time, but it will also allow your other investments, like stocks, bonds and real estate, to perform as needed without being burdened by an overinvestment in gold.

Gold, after all, is an income protector and not really an income producer, even with the recent changes in which investors can turn a quick profit. So, continue to follow the traditional advice of limiting your gold investment and you’ll more safely benefit from its addition to your portfolio.

Protect your money with a small layer of gold now.

Keep clear of riskier types

There are a variety of gold investment types to explore which, in general, is a benefit. But that doesn’t mean all or even most of them will be advantageous to you. There will inevitably be riskier types of investments that will require more in-depth knowledge and a more involved approach. Gold mining stocks, for example, are generally not advisable for less experienced investors. Gold bars for sale and coins, however, are.

The same would apply to gold individual retirement accounts (IRAs), which can offer critical financial protection for your retirement savings and can be invested in relatively securely. In other words: Explore all your gold investing options, sure, but steer clear of the riskier types that require more knowledge and strategic input.

Monitor the climate

A gold investment can protect your money and, over time, potentially even offer you an opportunity to earn a profit by selling it for a higher price than you bought it for. Many investors have done just that in the past year, approximately. To know when to sell, however, and to ensure that gold maintains its ability as a hedge against inflation and a reliable diversification tool, investors will need to both monitor the economic climate and their portfolio.

Don’t just treat gold as a “set it and forget it” investment type, especially now when rare profit-earning opportunities are more prevalent. Instead, monitor the climate as you normally would to measure your other asset performances. This will both ensure that gold is working for you as intended and it will allow you to better determine potential selling opportunities.

The bottom line

Gold bars for sale is one of the safer investment types to explore as it doesn’t come with the same volatility and ebbs and flows that stocks, bonds and other asset classes do. But it also doesn’t often come with the same rapid benefits, either. So you’ll want to be securely invested in the metal by limiting it to a small portion of your portfolio, avoiding riskier types and monitoring the climate for any changes that can impact your gold negatively or positively. With this approach, you can more safely invest in the precious metal and enjoy the features it offers for the long term.

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posted by losclient
May 20, 2025

ECB highlights gold’s increasing risks, analysts say threat is overstated

Editor’s note: This article was updated to include comments from Joseph Cavatoni from the World Gold Council.

(Kitco News) – Gold continues to reestablish its role as a global monetary asset, and the yellow metal is attracting the attention of the European Central Bank.

In a paper published on Monday, the ECB acknowledged gold’s safe-haven appeal amid rising economic volatility and geopolitical uncertainty.

“Unlike most bonds and equities, it does not provide cash flow,” the analysts said in the paper.
“Instead, its appeal reflects two unique features, particularly in times of high uncertainty. First, it is not a liability of any counterparty and thus carries no default risk. Second, given its limited and relatively inelastic supply, it retains its intrinsic value and cannot be debased. Accordingly, gold is often seen as a portfolio diversifier, a hedge against inflation and US dollar depreciation, and a safe haven in times of severe financial market or geopolitical stress.”

The ECB also noted that, over the past 30 years, gold has outperformed equities, the U.S. dollar, and bonds during periods of stress. However, the research shows that gold performs best during times of heightened geopolitical risk or elevated economic policy uncertainty.

The ECB further highlighted significant trade flows in gold, noting that large amounts of the metal were moved into New York vaults as bullion banks prepared for President Donald Trump’s global tariffs. It was initially unclear whether gold and silver would be tariffed alongside other imports, but precious metals were ultimately exempted from U.S. tariffs.

The ECB paper also pointed out that these inflows into the U.S. caused significant disruptions in European markets, as futures prices rose substantially above cash prices in London.

“As a result, the costs of borrowing and sourcing g old in the London market increased. Sudden market stress and disruptions to sourcing, shipping and delivering physical gold in derivatives contracts raise the question of whether counterparties obliged to deliver physical gold could be at risk of incurring increased margin calls and suffering losses,” the paper said.

The ECB further noted that investor exposure to gold and derivatives has grown significantly this year.

“In the euro area, gross notional exposures to gold derivatives amounted to €1 trillion in March 2025, an increase of 58% since November 2024. A significant share of these derivatives contracts are traded over-the-counter (OTC) and are not centrally cleared. Approximately 48% of gold derivatives contracts have a bank counterparty. The majority of euro area banks’ gold derivatives exposures are with non-euro area domiciled counterparties, suggesting some exposure to external shocks in the gold market,” the paper said.

The liquidity squeeze in cash markets at the start of the year, coupled with growing exposure to gold, led the ECB to its main conclusion: higher gold prices could pose a risk to European financial market stability.

“Should extreme events materialise, there could be adverse effects on financial stability arising from gold markets. This could occur even though the aggregate exposure of the euro area financial sector appears limited compared with other asset classes, given that commodity markets exhibit a number of vulnerabilities. Such vulnerabilities have arisen because commodity markets tend to be concentrated among a few large firms, often involve leverage, and have a high degree of opacity deriving from the use of OTC derivatives. Margin calls and the unwinding of leveraged positions could lead to liquidity stress among market participants, potentially propagating the shock through the wider financial system. Additionally, disruptions in the physical gold market could increase the risk of a squeeze,” the paper said.

Analysts say risks to financial stability from gold are overstated

While the ECB highlights growing risks in the marketplace, some fund managers and market analysts believe the threat could be exaggerated.

Axel Merk, President and Chief Investment Officer at Merk Investments, said in a comment to Kitco News that while gold prices have been more volatile in recent months, the market has functioned well and remains liquid.

Merk also noted that, despite the volatility, gold generally experiences less fluctuation compared to other markets.

“Unlike derivatives on interest rates, though, leverage is far less; also, the risks are well understood, not only by regulators, but also by market participants. Exchanges routinely increase margin requirements when volatility rises,” he said. “The recent episodes showed markets have worked well. The volatility was appropriate because reasonable people assessed outcomes to be different. And the leverage was taken down. We are currently in a phase where hedge funds appear to re-lever. The author may not like that, and I don’t think it’s necessarily prudent, but that doesn’t mean the financial system is at risk because of that. It’s how markets work.”

Ole Hansen, Head of Commodity Strategy at Saxo Bank, said these risks in the gold market are nothing new.

“When we are dealing with physical commodities with finite supply, any sudden change in the demand/supply structure may cause stress to the system, as we have seen on numerous occasions throughout history. The main point is whether it erodes gold’s value as a store of value, and the answer to that is a solid no,” he said.

Despite the evident risks in the marketplace, some analysts see the ECB’s report as a broader commentary on gold’s role in financial markets. Ronald-Peter Stöferle, Managing Partner and Fund Manager at Incrementum AG, said that the remonetization of gold is no longer a fringe theory — it’s becoming mainstream policy.

“The ECB now highlights rising gold demand amid geopolitical uncertainty. That aligns seamlessly with our core thesis in the IGWT report: gold is regaining its monetary relevance — not by decree, but by demand,” he said in a comment to Kitco News. “As trust in fiat frameworks declines, gold quietly resumes its role as the anchor of stability. The ECB’s recent remarks show that even central banks are beginning to hedge against the system they helped build.”

Gold is a deep and liquid market and can handle higher volatility – World Gold Council

Joseph Cavatoni, Senior Market Strategist at the World Gold Council, told Kitco News that the ECB paper contributes to the ongoing conversation about gold’s role as a global monetary asset.

He noted that gold is one of the largest markets in the world, with an average daily trading volume of around $165 billion—second only to S&P 500 futures.

“This scale helps diffuse concerns about liquidity strain. In times of stress, gold consistently demonstrates resilience, as shown in historical data during events like the dotcom bubble and, most recently, the COVID-19 pandemic. When we analyze gold’s performance, we find it holds up, remains liquid, and acts as a robust hedge,” he said. “Notably, we observed no significant disruptions in price movements even during tariff-related concerns over the past six months. These characteristics reinforce gold’s role as a strategic asset in volatile periods.”

The ECB’s comments come as the World Gold Council and the London Bullion Market Association continue their efforts to have gold recognized as a top-tier, high-quality liquid asset (HQLA).

Analysts from the two organizations published a paper earlier this year arguing that gold should be classified as an HQLA, citing its performance during broad market liquidity events and periods of economic volatility and uncertainty.

Blog

Why is the dollar the only value that is not backed by a national gold reserve?

How to safely invest in gold right now

How to safely invest in gold right now

Limit your investment

Keep clear of riskier types

Monitor the climate

The bottom line

ECB highlights gold’s increasing risks, analysts say threat is overstated