Steve Rand
General Manager / Sr. Precious Metals Advisor
Steve Rand is the General Manager and a Sr. Precious Metals Advisor at Scottsdale Bullion & Coin. He brings over 20 years of experience in the physical precious metals markets.
The gold standard is more effective at promoting long-term price stability, according to a study by the Federal Reserve Bank of Philadelphia. Researchers analyzed the economic effects of gold-backed and modern fiat monetary systems. This comprehensive study suggests that the gold standard is more fiscally beneficial than paper currencies. The commodity-based system proved more effective at maintaining price stability and minimizing inflation in the long run.
The Numbers
- Today, 193 countries use fiat-currency systems; 0 have a gold standard.
- Collectively, central banks own 35,000 tons of gold.
- The U.S. national debt is $35 trillion, and the global debt is $91 trillion.
Why Investors Should Care
The Fed is responsible for maintaining a stable economy by managing the money supply. Naturally, its fiscal policies directly impact the financial health of individual investors. Over the past few decades, the federal government has been printing and spending uncontrollably under the false assumption that debt isn’t an issue. Yet, the Fed’s own study reveals that paper money is less effective than the gold standard at stabilizing prices.
Market Impact
The Fed’s research is appropriately timed as central bank gold buying ramps up. 2022, 2023, and the first half of 2024 were record-setting years for government gold demand. At the same time, everyday investors are turning to gold to protect their savings and nest eggs from deterioration. That trend is likely to continue as fiat currencies face steep inflationary pressures. This devaluation is reflected in spiraling debt levels. The $35 trillion U.S. debt only represents a fraction of the world economy’s $91 trillion debt crisis .
Expert Insights
Researchers concluded that the gold standard “ensures long-term price stability” as circulating money and prices remain close to a government’s total funds. This prevents the spending-printing cycle which inevitably leads to inflation.
At the same time, they acknowledged that fiat monetary systems are economically viable only with “an optimal monetary policy.” Unfortunately, other experts point to the Fed’s obsession with Modern Monetary Theory (MMT) as guaranteeing the failure of a paper-based monetary system.
Eric Sepanek, founder of Scottsdale Bullion & Coin, explains “[MMT] is a theory that deficits don’t matter…that you can have unlimited printing…and just keep going forward.” He highlights the fact that “free money isn’t free money. There’s always a cost”.
Future Outlook
The abandonment of the gold standard in the 70s kickstarted a gradual process of economic decay. With each passing day, fiat currencies decrease in value, inflation rises, and market volatility increases. There are periods of calm but the overarching trend tends towards deterioration. Experts anticipate central bank and retail gold demand to rise. Also, many analysts have had to raise their gold price predictions for 2024 given the yellow metal’s record-setting surge.
👉 Related Read: The Gold Standard: Everything You Need to Know
What’s Driving the News?
The Philadelphia Fed, the University of Pennsylvania, the National Bureau of Economic Research, and the Centre for Economic Policy Research funded research into the effects of the “classical” gold standard as practiced at the turn of the 20th century. The goal was to compare and contrast the economic impact of gold-backed and fiat currency systems. The results call into question the Fed’s current policies.
Actionable Takeaways
Look to Diversify
You don’t have to suffer the consequences of misguided fiscal policies. Savvy investors achieve portfolio diversification by putting some of their wealth into physical gold and other precious metals which tend to keep pace with inflation.
Watch the Fed
The Fed might work behind the scenes, but their decisions directly impact the value of your income, savings, and nest egg. Paying close attention to their policies can improve the timeliness and accuracy of your investment decisions.
Talk to an Advisor
Gold has the potential to protect and even increase your wealth. However, speaking with an advisor ensures your gold strategy aligns with your overall investment goals. This can mean higher returns in the long run.
Want to Learn More About Gold?
The precious metals advisors at Scottsdale Bullion & Coin are eager to help! Contact us by calling toll-free at 1-888-812-9892 or using our live chat function. You’ll get a dedicated advisor to answer all your questions.