With today being the 40th Anniversary of Nixon taking the US off of the gold standard, King World News interviewed KWN Resident Expert Jim Rickards, Senior Managing Director at Tangent Capital Markets, to get his take on that historic event and where the US is headed forty years later. When asked about Nixon’s move in 1971 Rickards stated, “It is indeed a very significant date in the history of the international monetary system. August 15th, 1971, was the day that Nixon closed the gold window. By the way that’s a very technical term, I mean everyone says Nixon took us off the gold standard, it’s not exactly what he did.
What was going on at the time was that the official price of gold was $35 an ounce. When you were a country and you cashed in dollars at the US Treasury that’s how much gold you got, you got your gold at $35 an ounce. That was how countries settled up with each other.”
Jim Rickards continues:
“However, there was a private gold market at the time and in the private gold market, it was fluctuating, but it was selling for around $42 an ounce. So the gold window was basically an arbitrage. It meant that if you were France or the Netherlands or a country that had US dollars, you could cash in your dollars and get gold at $35 an ounce. Then you could turn around and sell it in the open market at $42 an ounce and basically make a risk-free profit and that profit was called, ‘The gold window.’ It was just a very simple arbitrage.
So what Nixon did, he closed ‘The gold window’, he said to the rest of the world, basically you can no longer come in with your dollars and get gold because I don’t want you doing that and then selling into the market and making the spread. But he never really took the US off of the gold standard, at least at the time. In fact to this day the gold is still on the books of the US Treasury. There were a couple of international monetary conferences during the course of which gold was revalued up to a little over $42 an ounce and that’s where it sits on the books of the (US) Treasury today.
There was a reporter at the time for Time Magazine, he said, “Well, all that’s happened is that instead of refusing to sell gold at $35 an ounce, the US will refuse to sell gold at $42 an ounce. In other words it was the selling of the gold that Nixon wanted to close.
You have to sort of put yourself in the scene: August 15th, 1971, was a Sunday and at least in the ‘70s we didn’t have the cable stations and the internet...You basically had ABC, CBS and NBC, you sat down on Sunday and you watched one of the big three networks. The most popular show at the time....
“...was a western show called, ‘Bonanza’. If you are too young to remember Bonanza, it would be kind of like American Idol today, it was the number one show in America.
Nixon goes on the air and he interrupts Bonanza, again it would be like the President coming on with a special announcement nobody was prepared for in the middle of American Idol, he’s (Nixon is) sitting at his desk and there is an American flag in the background and he says three things:
He said first of all I am imposing national price controls because there was an inflation problem in the United States at the time. The second thing he said was I am putting a 10% surtax of imports on all imported goods coming into the United States. Then about 10 minutes into the speech, very much en passant, he said, ‘Oh by the way we are suspending the convertibility of dollars into gold’ and he immediately went into this Nixonian rant about speculators.
He acted like the wounded party, he said, ‘I refuse to let the American dollar be held hostage by speculators and we are going to make sure these speculators never do our economy harm. So we are going to make it impossible for the speculators to profit by shutting the gold window’. He made it sound like he was doing everyone a big favor.
So it was very interesting, there were three earth-shaking announcements. Can you imagine any one of those three things going on today? President Obama or any President saying he was going to impose nationwide price controls, or all Chinese goods would have a 10% surcharge. It would be cataclysmic, yet Nixon did both of those things. Plus (Nixon) took us off the gold standard, so it was quite a dramatic speech.
In a strange way he did us all a favor by making sure we (the US) held on to the gold. So I do think the United States is in a position to revalue the currency using gold to that $7,000 level. That will obviously be a huge benefit to all of the people who invested in gold because they are going to be along for the ride, along with the United States when that gold goes to $7,000.”
