Herbert Hoover’s name is generally held with derision because he is blamed for the Great Depression. However, here’s one HH statement that all should agree with: “We have gold because we cannot trust governments.” Basically, a gold standard fails as a monetary system because the government is involved.
Under a gold standard, the value of a currency is based on gold. Governments are required (sic) to redeem in gold their paper money on presentation to the Treasury or a bank. Prior to 1933, a $20 bill could be redeemed for a $20 gold coin that contained 0.9675 oz. of gold.
With FDR’s Proclamation 6102, April 5, 1933, Americans could no longer turn in paper currency for physical gold. In fact, they were prohibited from continuing to hold gold coins. They had to turn them over to the government in exchange for paper currency. With Nixon’s “closing the gold window” August 15, 1971, governments could no longer redeem their dollar holdings in gold.
Our monetary system became fiat. The government (actually its apparatchik the Federal Reserve) could print however many dollars it wanted. Gold has seen three huge bull markets since 1971 because of reckless monetary policies made possible by our fiat monetary system. This is why the Fed could print $4 trillion to bail out the banks and insurance companies whose bad investments surfaced in 2008.
There is no reason to believe that reckless monetary policies will stop. In fact, there are reasons to believe that they will continue. Consider the discussion about Modern Monetary Theory and “debt doesn’t matter.”
Stocks have risen recently in anticipation that the Fed will lower rates in their July FOMC meeting or at least make a “dovish” statement about future interest rate decisions. And, gold is at $1350 for the same reasons.
A fiat monetary system is the worst, under which governments can print however many dollars they want. Don’t look for any serious talk about returning to gold anytime in the near future. It will take a crisis far worse than 2008. If any such talk is about a gold standard, remember Herbert Hoover’s admonition.