The Reason Governments Are In The Gold Business
The wealth of nations used to be stored in gold. Far back into human history, individual leaders and governments kept their wealth in gold, sometimes as gold jewelry and sometimes as coins and bars or ingots. Almost all coins contained some precious metal: silver and copper in smaller denominations and gold in highly valued coins. The average laborer may have never even seen gold in their lifetime. In fact, it was only in the 1960s that the U.S. stopped including any amount of silver in its coins. Even as far back as the Roman Empire, when governments reduced the quantity of precious metals in their coins, the rate of inflation went up and caused a serious monetary crisis that hastened the Empire’s decline.
In more modern times, governments issued currency backed up by the gold standard, a system in which dollars or pounds were guaranteed by a government’s gold reserves. The rate was fixed and periodically changes were made to reflect inflation in paper currency, with the same ounce of gold equaling more dollars. This lasted until the 1930s in the U.K. and the U.S., although the Bretton-Woods system meant the U.S. dollar was still tied to its gold reserves. That ended in 1971 when Nixon ended the convertibility of dollars into gold.
When gold reserves backed up currencies, it made sense for governments and central banks to own gold. But to this day, many central banks still hold large gold reserves, including the U.S. Some central banks have chosen to sell off their reserves. Canada has almost completely wound down its gold holdings. Others, like the Russian central bank, have been aggressively rebuilding gold reserves after major sell-offs decades ago during times of financial crisis.
Governments continue to own gold for a number of reasons. Like any investor, central banks are concerned with diversifying their holdings. Confidence in gold as an asset remains widespread and it protects the banks’ wealth in the event of a currency crisis. Many speculate that Germany’s decision to repatriate its gold (which it had moved to Paris and New York during the Cold War due to fears of being invaded by the Soviets) had to do with fears over the euro.
If central banks have confidence in gold, it’s a good reason for investors to be confident as well. In order to get the best prices on gold such as coins and bars, one place to look is online. An online gold dealer with insured, discreet shipping can put physical gold bullion in your hands at a lower cost. One such dealer, Silver Gold Bull, also coordinates gold bullion purchases as part of your RRSP. RRSP gold is tax advantaged, giving you an even better deal on gold bullion. Contact the people at Silver Gold Bull to learn more about investing with RRSP gold and the strength of gold bullion. Gold has inspired confidence for thousands of years. There’s no sign of gold’s strength as a wealth asset fading.
