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USD vs Gold

Gold is trading at all time highs in USD terms. Although it is always difficult to understand its economic behavior, humans have assigned historical value to it, and through history has been used as the ultimate hard currency. After #brettonwoods agreement, it backed the US dollar system at $35/oz until Nixon decided to break the peg. Breaking the peg, means the U.S. does not need to match with a specific amount of gold in its vaults (Fed) the amount of currency in circulation. In the table below, you can see the amount of gold (tonnes) above ground since 1910 compared with the US money supply (M2). We can see that while Gold supply has been growing around 1-2% per annum, money supply has grown on average by high single digits in the same period. This is called currency debasement. The important corollary of all this, is that gold is not going up in USD, it’s the U.S. dollar that is weakening vs gold, and the rest of the fiat currencies along with it.


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