Gold is the Winner After Half a Century of Floating Freely

In the 50 years since President Richard Nixon abruptly ended the gold standard by halting the convertibility of dollars into gold at $35 an ounce, the price of gold has soared while the value of the dollar and other fiat currencies, relative to gold, have declined precipitously.

Nixon unpegged the dollar from gold in August of 1971, setting it on a path to fluctuate against other currencies, and freeing gold to trade based on its market value. Since then, the price of gold has soared to 50 times its 1971 price. On an annual basis, returns from gold have averaged 10 percent over that half-century. In contrast, the U.S. dollar has devalued about 85 percent relative to the price of gold.

The chart below shows the performance of gold against the U.S. Dollar Currency Index, a widely-used measure of the dollar against major foreign currencies which began trading in 1985. As you can see, gold began to dramatically outperform the U.S. dollar in 2009.

Gold vs. U.S. Dollar Currency Index

Source: CNBC.com

It was then, during the Great Recession, that the U.S. federal deficit began to explode relative to gross domestic product as Washington undertook an aggressive stimulus plan to revive the economy. Deficit spending has steadily increased, reaching a peak of 136 percent of gross domestic product in 2020. Compare this on the chart below to 1971 when federal debt was only about one-third of gross domestic product.