The US economy affects directly and indirectly not only the
economies of other countries but the prices of the various major
commodities all over the world as well. The US dollar also determines
the strength of the currencies of other countries. It is a standard unit
for gauging or assessing the strength or weakness of all other
currencies.
Before the American dollar started dictating and controlling the economies of the world, gold was considered to be the international currency. The prices of gold controlled the balancing mechanism of the market. It acted like a self correcting force that ensured smooth trading among the different countries. Back in 1971, with the end of Bretton Woods Agreement, Gold was declared to be an irredeemable currency; meaning thereby that dollar could not be defined or measured in gold, in the USA.
This escalated in the use of paper money or the American Dollar internationally as well. Almost all foreign banks held their core reserves in Dollars, and this is how they traded with the USA. When foreigners sell something to the USA, they get American dollars in exchange. This creates a deficit in the balance of payments, and the foreigners buy gold in exchange of dollars. This caused inflation in the USA and it also affected the currencies of other countries.
Consequently, gold and the American Dollar today, have an inversely proportional relationship with each other. When the American Dollar strengthens, the price of gold falls; and when the American Dollar weakens, gold price increases.
People naturally turn to buying gold whenever they fear that inflation will hit their lives. They lose confidence in paper money or the US dollar, and start investing in gold because they firmly believe that no matter what, gold will pay always them back in the long run unlike the weakening dollar.
Nonetheless, the American dollar is still seen as the safest currency by the central banks of all countries around the world. Though, the American dollar is one of the 'fiat currencies', and economists suggest that all fiat currencies are doomed to fail one day. This is because the governments cannot maintain the value of the currencies because of so many factors: high interest rates and inflation. All they can do is to print and pump more paper money, or electronic money into the banks and market, which in turn devalues the currency.
Gold and bullion are 'non-fiat' currencies, because they are present in their physical forms. Only so much gold or bullion would be available to the people, as is present in the physical market. This is the reason why their value increases with the growing demand for them as the safest investment. The American dollar has weakened because of its credit crunch and because other countries started resisting to invest in it because of its weakening trend.
Gold prices rose to a new high as the US economy started to collapse since 1995. Since then gold prices have shot up tremendously.
Before the American dollar started dictating and controlling the economies of the world, gold was considered to be the international currency. The prices of gold controlled the balancing mechanism of the market. It acted like a self correcting force that ensured smooth trading among the different countries. Back in 1971, with the end of Bretton Woods Agreement, Gold was declared to be an irredeemable currency; meaning thereby that dollar could not be defined or measured in gold, in the USA.
This escalated in the use of paper money or the American Dollar internationally as well. Almost all foreign banks held their core reserves in Dollars, and this is how they traded with the USA. When foreigners sell something to the USA, they get American dollars in exchange. This creates a deficit in the balance of payments, and the foreigners buy gold in exchange of dollars. This caused inflation in the USA and it also affected the currencies of other countries.
Consequently, gold and the American Dollar today, have an inversely proportional relationship with each other. When the American Dollar strengthens, the price of gold falls; and when the American Dollar weakens, gold price increases.
People naturally turn to buying gold whenever they fear that inflation will hit their lives. They lose confidence in paper money or the US dollar, and start investing in gold because they firmly believe that no matter what, gold will pay always them back in the long run unlike the weakening dollar.
Nonetheless, the American dollar is still seen as the safest currency by the central banks of all countries around the world. Though, the American dollar is one of the 'fiat currencies', and economists suggest that all fiat currencies are doomed to fail one day. This is because the governments cannot maintain the value of the currencies because of so many factors: high interest rates and inflation. All they can do is to print and pump more paper money, or electronic money into the banks and market, which in turn devalues the currency.
Gold and bullion are 'non-fiat' currencies, because they are present in their physical forms. Only so much gold or bullion would be available to the people, as is present in the physical market. This is the reason why their value increases with the growing demand for them as the safest investment. The American dollar has weakened because of its credit crunch and because other countries started resisting to invest in it because of its weakening trend.
Gold prices rose to a new high as the US economy started to collapse since 1995. Since then gold prices have shot up tremendously.
Learn how to buy gold by taking help of professionals and reduce risks of loss for investment.
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