In the current run up in the price of gold, it is time to reassess how gold really relates to the dollar. One has to remember that gold almost never changes in value. It is the dollar that revalues in relationship to gold. For example, in 1920 a good quality men’s suit could be purchased with a typical $20 gold piece. A similar quality suit today can be purchased with about the same amount of gold.
There is endless discussion regarding officially re-linking the dollar to gold in some manner, but in fact, gold is de facto tied to the dollar, and has been since the birth of the nation. Each time that gold is purchased, the price is different, and reflects the current perceived change in the relationship between gold and the dollar.
The History of the Dollar’s Connection to Gold – An Outline
One could say that the dollar, though no longer gold, represents a claim on real things in the market place. This is flawed thinking. A unit of account that has no anchor tends to devalue over time, sometimes rapidly. This has been proven in the history of the D-4 dollar since 1971. The rapid run up in real estate prices, gold, commodities and numismatic coins show that people are willing to exchange more and more fiat dollars for other things that maintain real value. Saving fiat money as a store of value is certainly foolhardy.
Historical research courtesy of the American Institute for Economic Research