Gold Prices and the U.S. Economy

What Makes Gold Prices Move

Gold prices reveal the true state of U.S. economic health. When gold prices are high, that signals the economy is not healthy. Investors buy gold as protection from either an economic crisis or inflation. Low gold prices mean the economy is healthy — making stocks, bonds, or real estate more profitable investments.

Gold prices reflect the beliefs of commodities traders. If they think the economy is doing poorly, they will buy more gold. If they think the economy is doing well, they will buy less gold. Gold prices reveal what savvy investors know about economic health. Here are examples of how that works. 

The Gold Rush Started It All

Gold miner with coins

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When gold was found at Sutter's Ranch in 1848, it inspired the Gold Rush to California and the unification of western America. In 1861, U.S. Treasury Secretary Salmon Chase printed the first U.S. paper currency backed by gold. That was the beginning of the gold standard.

Gold Prices and the Great Depression

Franklin D Roosevelt and Winston Churchill meeting in Quebec, Canada, 1944.
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The price of gold went from $20.67 an ounce in 1929 to $35 an ounce in 1934. The Federal Reserve was trying to maintain the gold standard as the economy continued to worsen. That contributed to the Great Depression, sparked by the stock market crash of 1929 and multiple bank failures.

People started to hoard gold for protection. While countries in Europe had dropped the gold standard, the United States held on. In 1934, President Franklin D. Roosevelt finally took action and signed the Gold Reserve Act. This made it illegal for the general public to own gold in most forms.

The Act required people to exchange their gold coins, bullion, and certificates for $20.67 per ounce in paper money. It helped the federal government bolster its reserves of gold.

The government raised the price of gold to $35 an ounce, allowing it to print more paper money. Slowly, the economy started to grow again.

Gold Prices Tripled in One Day

Soviet leader Leonid Brezhnev signs an agreement with President Richard Nixon June 20, 1973 at Camp David, MD to prevent nuclear war with the US.

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One of the most important moments in gold price history was the day President Richard M. Nixon detached the U.S. dollar from the gold standard. Gold prices skyrocketed from $42 to $120 an ounce. 

In 1971, Nixon told the nation's central bank to stop redeeming the dollar for its value in gold. Foreign central banks could no longer exchange their dollars for U.S. gold. Nixon wanted to make the value of the dollar weaker compared to gold. He thought that would end the inflation caused by his wage-price controls. By 1976, Nixon abandoned the gold standard completely.

June 2, 2016 - Gold Rose $100 in Six Hours

Gold dollar coins

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In June 2016, gold prices surged $100 an ounce in six hours. Investors panicked in the wake of Brexit, when Great Britain voted to leave the European Union. Prices rose from $1,254.96 at 4 p.m. on June 23, the evening of the Brexit vote, to $1,347.12 at midnight. Investors bought gold as a hedge against a declining euro and British pound.

In 2016, the U.S. stock market also entered a stock market correction. As the Dow Jones Averages fell, gold prices rose.

September 2011 - Gold Hits High of $1,874 an Ounce

On Sep. 2, 2011, gold reached its record high (as of that time) of $1,873.70 per ounce. A weak jobs report, ongoing Eurozone debt crisis, and lingering uncertainty over the U.S. debt ceiling caused prices to nearly double from $1,000 an ounce in 2009.

In July, investors worried that Congress wouldn't raise the debt ceiling in time. Without the ability to issue new debt, the federal government might have defaulted on its debt

In September 2009, gold was trading near its all-time high of $1,032. As the dollar declined, many wondered whether it was a good time to buy gold. It was, if you had a crystal ball and could see into the future. At the time, the world was coming out of the 2008 financial crisis. Many thought economic growth would bounce back as it did following any other recession. Instead, a high foreclosure rate in the United States and growing sovereign debt concerns in Europe kept investors on edge.

Still, most financial planners will advise you have no more than 10% of your assets in gold.

2020 Recession Causes New Record High for Gold

Mother and son wearing masks

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On July 23, 2020, gold surpassed its prior high, closing at $1,882.35 an ounce as investors were concerned about the 2020 recession. By August 7, 2020, gold reached a new all-time record of $2,062,50 an ounce.