Gold is one of the most fascinating metals in the world. Unlike other metals like silver and palladium, gold does not have a lot of industrial use. Instead, most gold that is mined is usually bought by central banks and other investors. They buy it as an investment and as an insurance against risks. Indeed, the price of gold tends to climb when there are significant market risks. The chart below shows that gold price has climbed by almost 600% in the past few decades. In this article, we answer the question of currencies backed by gold.
Currencies Backed by Gold
Many people wonder whether there are any companies that are backed by gold. The reality is that no world currency is currently backed by gold.
It was not always like that. Indeed, in the past, the US dollar was backed by gold. Here is a brief history. International trade started getting popular in the late 1800s. This is a time during the industrial revolution. During this time, the shipping technology was getting advanced and popular.
The challenge was that countries lacked a means of exchange to use. As a result, countries that were involved in trade embraced the US dollar and the role of gold. This led to the creation of the first gold standard in 1821.
The gold standard was abandoned during the first world war. It was abandoned because European countries needed to print more mooney to buy weapons to fight the war. There was also a belief that there was not enough gold to back the notes that were printed.
In 1942, world leaders met in the United States, in a meeting that is widely known as the Bretton Woods. The meeting resulted in what is known as the Bretton Woods Agreement. In this agreement, the gold standard was left in place. The main change was that its domestic convertibility was removed. As a result, the IMF was formed to facilitate the conversion.
In 1971, the then president of the United States was Richard Nixon. It was a difficult time for the US economy as inflation was rising. In reaction, Nixon decided to unpeg the gold convertibility. At the time, gold was selling for $35. This marked the end of the gold standard. No other currency ever since has been backed by gold.
Crypto Backed by Gold
As we pointed out above, there is no currency that is backed by gold. However, in recent years, we have seen cryptocurrencies or altcoins that are backed by gold come up. The promise of these currencies is that each currency is backed by gold.
Examples of cryptocurrencies that are backed by gold are:
- DGLD – This is a gold-backed altcoin that was launched by Coinshares Group in 2019.
- Ekon Gold. This is another altcoin that was launched by Eidoo.
- Aurus. This is a gold-backed crypto that was launched in 2017.
- BlockNote. This is a European gold-backed currency.
- Cash Telex. This is another currency that is backed by crypto.
Investing in altcoins is a risky business. Always do your research before you invest in them.
Bitcoin Similarity to Gold
To a large extent, gold and Bitcoin are very different. Gold is a metal while Bitcoin is a digital asset. However, the two are very similar when you look at them closely.
First, the two are pioneers. Gold was the earliest currency in many places. Bitcoin, on the other hand, was the first cryptocurrency. Second, gold is often viewed as a safe haven asset. Many crypto enthusiasts believe that Bitcoin is a digital gold.
Third, gold does not have many real uses. The same is true with Bitcoin. Indeed, most Bitcoin that has been mined is used as an investment.
Fourth, Bitcoin and gold have limited supplies. It has been widely reported that gold supplies are running out. As we wrote in this Bitcoin article, there are only 21 million Bitcoins that will ever be mined. This means that the supply will end one day.
Therefore, you can invest in Bitcoin as a proxy to investing in gold. However, you should understand that Bitcoin is a volatile asset that often fluctuates significantly.
Investing in Gold
Another way of having exposure to gold is to invest in the metal itself. We described the various ways you can invest in gold in this article. As a recap, here are the main ways you can invest in gold if you are interested in the metal.
- Buy physical gold. You can buy physical gold from top dealers. This is an inefficient method.
- Buy gold CFDs. You can buy gold contracts for difference from most brokers.
- Buy gold bars. You can buy gold bars and coins from the leading companies like Monex and Regal Assets.
- Invest in gold stocks. You can invest in gold stocks like Goldcorp and Newmont Mining.
- Invest in gold ETFs. You can invest in gold ETFs like iShares Gold Trust and SPDR Gold Shares.
There is no gold-backed currency today. Still, there are multiple ways in which you can have exposure to gold. You can buy gold coins and gold altcoins and the other methods that we have discussed above.
Crispus is a finance professional with more than a decade experience in the industry. Over the years, Crispus has written in-depth articles on leading platforms like CCN, Marketwatch, and Seeking Alpha. He also runs a Forex education and managed account company called WestEndFx.