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The relationship between gold and the U.S. dollar is a relatively straightforward one. / Credit: Getty Images
The price of gold, as denominated in US dollars, was stable until the collapse of the Bretton Woods system in the mid-1970s. The Bretton Woods system of monetary management established the rules for commercial relations among 44 countries, including the United States, Canada, Western European countries, and Australia [1] after the 1944 Bretton Woods Agreement.
It also sought to move away from the US dollar in trade, particularly with countries in Asia, Africa, and the Middle East. Russia has also been stockpiling gold as a hedge against potential future shocks to its reserves. Gold, being a traditional store of value, is not subject to the same sanctions and restrictions as foreign currency holdings.
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In order to maintain the Bretton Woods system, the US had to run a balance of payments current account deficit to provide liquidity for the conversion of gold into U.S. dollars. With more US dollars in the system than were backed with gold under the Bretton Woods agreement, the US dollar was overvalued relative to gold.
Correlation isn't causation, but it looks like gold's fall is driving bitcoin prices up. Skip to main content. 24/7 Help. For premium support please call: 800-290-4726 more ways ...
This debt continued to increase, reaching 3.7 billion dollars in BOP debt and 1.4 billion dollars of gold each year from 1958 to 1962. In addition to debt and a shrinking gold reserve, the U.S. dollar experienced accelerated inflation after 1965. Prior to 1965, inflation was at less than 2 percent per year.
Gold prices surged in 2024, rising 26 percent, narrowly beating the S&P 500’s return of 25 percent and leaving investors wondering if there’s more room to run or if it’s time to sell.