Thursday, December 8, 2011

What is gold reserve and its relation with a country's money currency?

I want know the effect of a gold reserve on one country's currency. For example, presently 1 US Dollar is equivalent to 0.8116 Euro, is gold reseve has any thing to do with this currency exchange or there are other factors that deternine the currency?|||The US dollar use to be backed by the gold standard. Meaning back then, you use to be able to go and exchange your money for gold if you wanted to. However, the US government no longer does this and you can no longer exchange for gold. You can STILL BUY gold, but you cant exchange it..|||Ever since Nixon took us off the Gold Standard in 1971, the U.S. Dollar (and the other world's currencies) has been a fiat currency (meaning it is not backed by gold or silver or anything else except for the promise it has value by the Federal Government).


The government loves this arrangement because it allows them to print virtually unlimited amounts of money.


However, gold is an excellent way to gauge the true value of a currency. Take the US dollar. Gold, in US dollars is over $1,200/ounce. What this really means is that 1 dollar is worth 1/1,200th of an ounce of gold. To illustrate how worthless the US dollar has become, gold in the early '70's was $35/ounce. So the dollar had a value of 1/35 of an ounce of gold and now it's worth less than 1/1200th of an ounce of gold.


If you want to understand more about this, listen to Peter Schiff on youtube - he explains alot about economics - especially about gold and the dollar and he's very interesting.|||Gold has been fetching a very high price in the last couple years and it currently trades at about $1,200 per ounce. While this has been great for those trading the commodity, one fund manager says it may be nearing the peak and that the better investment is in mining gold.

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