Gold vs. Dollar: A History of Sound Money

In 1913, one US dollar could buy what would cost you about $31 today. Put another way, the dollar has lost roughly 97% of its purchasing power over the last hundred-plus years. If you had buried a dollar bill in your backyard in 1913, it would still be a dollar bill today — but it would buy almost nothing.

An ounce of gold in 1913? Worth about $20. Today that same ounce is worth over $3,000.

This is not a coincidence. It is the story of what happens when money is no longer tied to anything real. And understanding it is one of the most important things a retirement investor can do.

What Is "Sound Money"?

Sound money is money that holds its value over time. It cannot be created out of thin air. It is scarce, durable, and widely accepted. For most of human history, that meant gold and silver.

The opposite of sound money is fiat currency— paper money that has value only because a government says it does. Fiat comes from the Latin word meaning "let it be done." In other words, a dollar is worth a dollar because the US government declared it so.

That works fine — until it doesn't. And history is full of examples of fiat currencies that eventually failed.

5,000 Years of Gold as Money

Gold has been used as currency since at least 3,000 BC in ancient Egypt. The Lydians — an ancient civilization in modern-day Turkey — minted the world's first standardized gold coins around 600 BC. The Greeks, Romans, Byzantines, and virtually every major civilization that followed used gold as the foundation of their monetary systems.

Why gold? Because it has properties that make it nearly perfect as money:

No government created these properties. They are physical facts about gold as an element. That is precisely why gold became money — not because someone declared it valuable, but because everyone recognized that it was.

The Gold Standard: America's Sound Money Era

The United States operated on a gold standard for most of its history. Under a gold standard, the paper dollars in circulation are directly backed by a fixed amount of gold held in reserve. A dollar was not just a piece of paper — it was a claim check for real gold.

From 1879 to 1933, one US dollar was legally defined as 1/20th of an ounce of gold. You could walk into a bank and exchange your paper dollars for gold coins at that fixed rate. This kept the government honest — it could only issue as many dollars as it had gold to back them.

The result? Prices were remarkably stable for decades. A dollar in 1879 bought roughly the same amount as a dollar in 1913. That kind of price stability is almost unimaginable today.

1933: The First Break With Gold

The Great Depression changed everything. In 1933, President Franklin D. Roosevelt signed Executive Order 6102, making it illegal for American citizens to own gold coins, gold bullion, or gold certificates. Americans were required to turn their gold over to the Federal Reserve in exchange for paper dollars.

Once the government had the gold, it devalued the dollar — raising the official price of gold from $20.67 to $35 per ounce. In a single stroke, every dollar in America was worth less.

This was the first major crack in the gold standard. Americans could no longer exchange their dollars for gold. The dollar was still theoretically backed by gold — but only foreign governments could redeem it.

1944: Bretton Woods and the Dollar's Moment of Supremacy

After World War II, the allied nations gathered in Bretton Woods, New Hampshire, to design a new global monetary system. The US had emerged from the war as the world's dominant economic power, holding the majority of the world's gold reserves. So a deal was struck:

Every currency in the world would be pegged to the US dollar. And the US dollar would be redeemable for gold at $35 per ounce — but only by foreign central banks, not by ordinary citizens.

This made the dollar the world's reserve currency. International trade was priced in dollars. Countries held dollars in their vaults instead of gold. The dollar was, effectively, as good as gold.

But that promise came with a condition: the US had to be disciplined about how many dollars it printed. And over the next 25 years, it wasn't.

1971: Nixon Closes the Gold Window

By the late 1960s, the US had been spending heavily on the Vietnam War and President Johnson's Great Society programs — and printing dollars to pay for it. Foreign governments noticed that there were far more dollars circulating than there was gold to back them up.

France, led by President Charles de Gaulle, began converting its dollar reserves back into gold at the official $35 rate. Other countries followed. The US gold reserves were draining fast.

On August 15, 1971, President Richard Nixon went on television and announced that the United States would no longer honor the promise to redeem dollars for gold. The gold window was closed. The last link between the dollar and gold was severed.

What Happened After 1971

The results were predictable in hindsight. When a government can print money without limit, it tends to print money without limit. And when there are more dollars chasing the same amount of goods, prices rise. That is inflation — and it has been the defining financial story of the last 50 years.

Consider what $1 in 1971 buys today: the equivalent of about 16 cents. The dollar has lost roughly 84% of its purchasing power since Nixon closed the gold window.

Gold, meanwhile, was $35 per ounce in 1971. Today it trades above $3,000 per ounce — a gain of over 8,000%.

Gold did not become more valuable. The dollar became less valuable. Gold just held its ground.

A Historical Look at Fiat Currencies

The United States dollar is not the first fiat currency in history. Here is a partial list of fiat currencies that experienced severe inflation or hyperinflation:

These are not ancient history or fringe examples. They happened to ordinary people — teachers, farmers, retirees — who woke up one day to find that their savings were worthless. In every case, those who held gold preserved their wealth. Those who held paper currency did not.

Is the Dollar Headed for the Same Fate?

This is where reasonable people disagree — and where we want to be honest with you. We are not predicting the collapse of the US dollar. The dollar is still the world's reserve currency, and the US economy is still the largest on Earth.

Some notable facts: the US national debt has exceeded $34 trillion. The Federal Reserve expanded the money supply significantly during the 2008 financial crisis and again during COVID-19. Inflation surged to 40-year highs in 2022.

These are historical facts, not predictions about what will happen next. Understanding the differences between a gold IRA and a traditional 401(k) can help you understand your options. What any of this means for the future is something no one can predict with certainty.

What This Means for Your Retirement Research

Understanding the history of gold and the dollar is useful context when researching retirement account options. A 401(k) can be rolled over to a gold IRA, but whether that makes sense for you depends on your individual financial situation.

Gold is a physical asset with a long historical track record. It behaves differently than stocks, bonds, or cash — and it has different risks and characteristics than each of those asset classes.

The IRS has specific rules for holding gold in retirement accounts, but the process is straightforward. Whether gold belongs in your retirement plan is a decision to make with a qualified financial advisor who understands your complete financial picture.

A gold IRA lets you hold physical gold inside a tax-advantaged retirement account. It is one way to hold precious metals without giving up the tax benefits of an IRA structure.

Frequently Asked Questions

This article is for educational purposes only and does not constitute financial or investment advice. Historical data is used for illustrative purposes. Past performance of any asset, including gold, does not guarantee future results. Always consult a qualified financial advisor before making investment decisions. GoldIRADeals.com may earn affiliate commissions when you click through to dealer websites.