Gold Markets · History of Money
The Gold Standard
1944–1971: how gold anchored the dollar, and why that ended
For much of the 20th century, the world's money was tied to gold at a fixed price. The story of how that system was built and abandoned explains why gold still matters.
Today gold's price floats freely, set by markets minute to minute. For most of modern history that would have seemed absurd: gold's price was fixed by law, and paper money was a claim on it. Understanding the rise and fall of the gold standard explains both why gold was money and why its price now behaves the way it does.
Money you could redeem for gold
Under a classic gold standard, a unit of currency was defined as a fixed weight of gold, and you could, in principle, exchange your paper notes for the metal. This disciplined governments: they could not print money without limit, because they had to keep enough gold to back it. It also made exchange rates between gold-standard countries effectively fixed.
1934: America revalues gold
In the Depression, the United States tightened its grip on gold. The Gold Reserve Act of 1934 moved the nation's gold to the Treasury, and the government raised the official price from $20.67 to $35 per ounce, devaluing the dollar against gold to give itself room to expand the money supply. (Private citizens had also been ordered to turn in most of their gold the year before.)
1944: Bretton Woods
As the Second World War drew to a close, 44 nations met at Bretton Woods, New Hampshire, in 1944 and built a new system around American gold. The US dollar was pegged to gold at $35 an ounce, and other major currencies were pegged to the dollar. The dollar became the world's reserve currency, backed, ultimately, by the promise that foreign governments could swap dollars for gold.
We saw the great inflations... We saw the collapse of the gold standard. We were determined to build something better.
1971: the Nixon shock
The system contained a flaw. As the US printed more dollars, foreign claims on American gold grew faster than the gold itself. By 1971 the promise was no longer credible, and gold was draining from US vaults. On August 15, 1971, President Richard Nixon suspended the dollar's convertibility into gold, the "Nixon shock." It was meant to be temporary. It was permanent.
The floating era
With the last link to gold cut, the world entered the age of floating fiat currencies, money backed by nothing but government credibility. Freed from its fixed price, gold began to trade as a market asset. It rocketed through the inflationary 1970s, peaked in 1980, fell for two decades, and has since become a real-time barometer of confidence in the fiat system itself.
The gold standard is gone, but its logic lingers. Every time gold sets a new record, it is a reminder that the world's money once had an anchor, and that some still wish it did.
