Gold, Silver & Platinum with WhichWayGold - House Price Predictions with WhichWayHomes   House Price Predictions & Real Estate News - WhichWayHomes   How to buy Gold, Silver & Platinum - WhichWayGold
Buy Gold Now - How and why to buy gold

Buy Gold Now: Why should you buy gold? How do you buy gold? Investment expert Shayne McGuire explains how to profit from this precious metal and how buying gold can protect you from financial risk. Read more about Buy Gold Now >

Join WhichWayGold on Facebook Follow WhichWayGold on Twitter

Category Navigation:

You're currently on:

Benefits of Gold on a Global Scale

7 - The Benefits of Gold & Silver on a Global Scale

Placing silver at the back of our minds for a moment, the description above in “Money Substitutes” is basically a simple form of a “gold standard”. The money substitutes are backed by gold and are convertible “on demand” back into the money metal. For centuries many countries previously existed under some form of gold standard. The limited supply of gold conveyed disciplinary benefits, ensuring that the economy of a particular country did not overheat and that the country’s economic relationship with other countries remained stable. For example...

Country A holds large gold reserves, allowing credit to be created easily by its banks. Individuals and companies borrow freely, facilitating investment and economic expansion.The banking system of Country B contains little gold. Credit creation and borrowing are therefore difficult and the economy contracts.
The economy of country A prospers, corporate profits increase, jobs are created and the consumer appetite grows, leading to the purchase of more products.The inability to borrow forces Country B's companies to operate as efficiently as possible. The prices of its goods and services are therefore low, making them attractive to Country A.
Country A purchases more from Country B than it sells to it. Gold flows out of the country and its gold supplies contract.Country B finds itself seeling more to Country A than it buys from it. Gold flows into the country and its gold supplies increase.
As Country A's gold reserves decrease the amount of credit banks can create also decreases, thus reducing the amount of money they can lend.The banks in Country B find themselves holding larger reserves of gold, increasing the level of credit they can create and the amount they can lend.
The reduction in borrowing power forces a cut in investment, job losses and a reduction in spending as the economy contracts.The increase in borrowing power facilitates private and corporate investment and economic expansion.
As the contraction continues, more jobs are lost and corporate profits suffer further. Country A eventually buys furhter products from Country B than it sells to it and the outflow of gold reverses.As Country B prospers its profits increase, jobs are created and the appetite of consumers grows, leading to the purchase of even more products. Gold starts to flow back out of the country.
As Country A's gold reserves become replenished, its banks can again begin to create credit and to lend more, which leads to an increase in borrowing, investment and expansion.The banks in Country B find themselves holding decreasing reserves of gold, reducing the amount of credit they can create and therefore the amount of money they can lend.
The appetites of consumers and companies begins to grow once more. Purchases of goods and services increase, leading to a new phase of expansion and repetition of the cycle.This reduction leads to a new phase of contraction in which investment is cut back causing job losses and a decrease of purchases from Country A. A new cycle begins.

Both countries exist in economic equilibrium. Balance is maintained by the flow of a limited amount of gold between them, resulting in a cyclical pattern of expansion and contraction depending on whether gold was flowing into or out of the country. It is this balance which helped to prevent economic excess and economic overheating.

Go Back to "6"     Continue to 8 "Price Setting Under a Gold Standard"
Send to a friend Email to a Friend    Add to Favourites Add to Favourites   Bookmark and Share