Gold and Market

Many investors feel they're well informed if they stay abreast of the business news. That's fine, but it's really just the tip of the iceberg.

Far more important is the historical view or big picture. The big picture is the real story and it explains why the markets are moving the way they are.

In a nutshell, here's the primary backdrop, which got us to where we are today...

Around the time of World War II, several big countries agreed to keep their exchange rates pegged in terms of gold. The U.S. dollar became the world's reserve currency, but international payments could also be made in gold.

This worked for some years, but the U.S. spent too much money in the 1960s on the Vietnam war and social spending. So more countries wanted their payments in gold, which sharply reduced the U.S.'s gold reserves.

Finally, in 1971, Nixon stopped the gold payments, and the world went off the gold standard. In essence, countries were then free to spend and inflate because gold's discipline was gone. Overall, this situation seemed okay until about 2000.