The Economic Value of Gold in the Ancient Roman Empire
Augustus, who ruled over ancient Rome from 31 BCE until 14 CE, is credited with establishing the price of gold at between 40 and 42 coins per pound. To put it another way, a pound of gold might be used to manufacture between 40 and 42 coins.The following revaluation took place during the reign of Marcus Aurelius Antoninus (Caracalla), which lasted from 211 to 217 CE. During this time, the value was debased to 50 coins for a pound of gold, which decreased the value of each coin and increased the value of gold. This occurred during this time period. During the years 284 CE to 305 CE, Emperor Diocletian instituted a further debasement of gold, initially setting the price at 70 coins per pound but later lowering it to 60 coins per pound.
In the years 306 CE to 337 CE, Constantine the Great instituted a debasement that reduced the value of the currency to 72 coins per pound.
These emperors significantly reduced the value of the money, which led to hyperinflation during their reigns. To give an example, in the year 301 CE, one pound of gold was equivalent to the value of 50,000 denarii, which is an additional coin based on silver. It had a value of 30 million denarii by the year 337 CE.2
The price of everything else increased in tandem with the price of gold as it grew. Empires came to an end as middle-class individuals were unable to purchase their day-to-day necessities.
The Cost of Gold in the Early Years of the United Kingdom
In the year 1257, Great Britain determined that 0.89 pounds was the appropriate price for one ounce of gold. As a result, the price increased by approximately one pound every century, as described below:
1351 represents 1.34 kg
1465 is equal to 2.01 pounds.
1546: three and a half pounds
1664: a weight of 4.05 pounds
4.25 kilograms in 17173
During the 1800s, the majority of nations used paper currencies that were backed by their values in gold. These currencies were produced. Countries maintained sufficient gold reserves in order to support this value, which came to be known as the “gold standard.”
The year 1900 marked the beginning of the gold standard’s history in the United States. The Gold Standard Act designated gold as the sole precious metal that could be used to redeem paper currency. It determined that the price of an ounce of gold would be $20.67.4
Up to the Bretton Woods Agreement in 1944, Great Britain maintained the price of gold at 4.25 pounds per ounce.5 Because the United States held the majority of the world’s gold at that time, the majority of industrialized countries reached an agreement to peg their currencies to the value of the United States dollar.6
Regulations Concerning Gold in the United States
Prior to the passage of the Gold Standard Act, the United States adhered to the gold standard established by the United Kingdom. It was established in 1791 that the price of gold would be $19.49 per ounce, although silver was also used to redeem currency. This led to an increase in the price of gold in 1834, which reached $20.69 per ounce.7
The fight to maintain the gold standard was a contributing factor in the Great Depression. After the Federal Reserve had increased interest rates in 1928, the economy entered into a recession in August of 1929. Following the collapse of the stock market in 1929, many investors began exchanging paper currency for its equivalent value in gold.
The Department of the Treasury of the United States was concerned that the country would run out of gold. It requested that the Federal Reserve increase interest rates once again. The increase in interest rates led to an increase in the value of the dollar, which led to the dollar becoming more valuable than gold. 1931 was a successful year for this strategy.89
The increased cost of borrowing money as a result of higher interest rates contributed to the failure of many businesses. They also contributed to deflation since a stronger dollar allowed people to buy more with the same amount of money. Businesses reduce their expenses in order to maintain cheap prices and keep up with the competition. This contributed to a further increase in unemployment, which ultimately led to the recession becoming a depression.
By 1932, investors were once more exchanging their money for gold. People began stockpiling the precious metal as gold prices increased, which led to an even greater increase in those prices.
In April 1933, in an effort to halt the process of redeeming gold, President Franklin D. Roosevelt made it illegal for private individuals to own gold in the form of coins, bullion, or certificates. The United States’ citizens were forced to sell their gold to the Fed.
After another year, Congress finally approved the Gold Reserve Act, which granted President Roosevelt the authority to increase the price of gold to $35 per ounce.10 This resulted in a decline in the value of the dollar, which contributed to inflation.
In 1937, in an effort to lower the deficit, FDR curtailed government spending, which in turn rekindled the Great Depression. At that point, the total value of the gold in the government’s hoard had nearly reached $9 billion.11 It was stored in the Federal Reserve Bank of New York in addition to the United States Bullion Reserves that are located in Fort Knox, Kentucky.
In 1939, in preparation for World War II, FDR increased spending on the military, which coincided with an expansion of the economy. At about the same time, the drought that had plagued the Dust Bowl was broken. The Great Depression was over as a result of this combination.
The main nations sat down in 1944 to discuss the Bretton Woods Agreement, which established the dollar as the primary reserve currency for international transactions. The United States of America has expressed support for maintaining the price of gold at $35 per ounce.12
In 1971, President Nixon gave the Fed instructions to stop recognizing the value of the dollar in terms of gold. That meant that foreign central banks could no longer trade their dollars for gold produced in the United States, which meant that the dollar was effectively removed off the gold standard. Stagflation is a combination of inflation and recession, and Nixon was working to put an end to it. On the other hand, inflation was brought about by the growing influence of the dollar, which had supplanted the pound sterling as the primary worldwide currency by that time.13
After being uncoupled from the dollar in 1976, the price of gold skyrocketed to more than 120 dollars an ounce very rapidly.
By the year 1980, investors had driven the price of gold up to about $600 an ounce as a hedge against inflation of double digits. However, by increasing interest rates to double digits, the Federal Reserve was successful in bringing down inflation. Gold prices fell to $410 an ounce and stayed in that similar trading range until 1996, when they fell to $288 an ounce as a direct result of consistent economic expansion.
After each new economic crisis, such as the terrorist acts of September 11, 2001, and the recession of 2001, traders gravitated back into gold.
During the global financial crisis of 2008, the price of an ounce of gold reached a record high of $872.37. August of 2011 marked the month in which the price of an ounce of gold reached a new all-time high of $1,917.90. Investors were concerned that the United States might default on its debt.14
In January of 2020, the World Health Organization (WHO) announced that the COVID-19 epidemic had reached pandemic proportions and should be treated as such. On August 3, 2020, the price of an ounce of gold had finally stabilized at an all-time high of $2,016.58.15
Gold prices in the beginning of 2021 were trending lower when compared to the high reached the previous year, but they have changed in both ways. At the beginning of the year, investors cashed out their gains. On the other hand, as the year progressed, the likelihood of an increase in inflation and an increase in short-term interest rates by the Federal Reserve grew. The price of gold reached $1,816.5.16 on November 22, 2021.
The price of an ounce of gold began 2022 at $1,751.85, reached its high point of $2,017.15 in the middle of the year, and then gradually decreased until it reached $1,660.80 in the beginning of October.15
Questions That Are Typically Responded To (FAQs)
What factors influence the price of gold?
The forces of supply and demand play a role in the price of gold, as they do in other markets. When it comes to gold, supply is impacted both by trade patterns and by the rate at which mining companies are able to unearth additional gold that they can then sell on the market. The attitude that now prevails in the market toward inflation is one of the primary elements that influence demand. When inflation rates rise, the value of the dollar falls; consequently, some investors seek to diversify their holdings into gold in the expectation that it would maintain its purchasing power.
Does the fluctuation in the price of gold have an effect on interest rates?
Because interest rates are linked to inflation, historically speaking, they have also had a strong correlation with the price of gold. If there is an increase in the strength of the dollar and there is a decline in inflation, then it is possible that interest rates will fall at the same time that gold prices fall. As a result of falling inflation, cash equivalent assets are no longer required to pay extremely high interest rates, and less individuals are turning to gold as a reliable means of value preservation.
When it comes to buying gold, what exactly does “spot price” mean?
When people talk about the “spot price” of gold, they are simply referring to the price at which you are able to purchase gold at that very moment. The distinction between the “spot price” and the “futures price,” also known as the price that is guaranteed by a futures contract, is most likely to be understood by commodity traders, who frequently engage in futures trading.