The classic gold standard was adopted in the 1870s and involved backing paper money with the value of gold held by sovereign foreign exchange issuers. In 1859, the Comstock Lode was discovered in Nevada and the supply of silver from the United States increased significantly in just a few short years. While the increase in the quantity of silver had no immediate impact, it eventually caused an oversupply and a fall in the price of silver during the 1870s. In a series of three devaluations of the dollar between August 1971 and August 1973, Nixon raised the price of gold against the world's reserve currency.
In fact, in terms of the purchasing power to buy a home, the price of gold performed better as a hedge against inflation. Until 1971, the price of gold was determined by the exchange rate between an ounce of gold and the currency with which gold was measured. When that happens, a substantial upward revaluation of the price of gold will be required, at which point the price will once again be based on a fixed exchange rate. The price of gold was based on a fixed exchange rate whereby paper money could be freely exchanged for gold at that fixed rate.
This probably influenced the Government's decision to revalue the price of gold to avoid a huge rush to exchange dollars for gold in banks. Since 1971, the global commercial market has set the price of gold, despite the constant efforts of Western central banks to suppress the price of gold. From 1900 to 1933, the U.S. dollar was fully backed by gold and paper notes could be exchanged for gold on demand.
Silver remained at historically high levels for more than a decade and its price relationship with gold was negatively biased. The easily observable catalyst for the upward movement of gold was rampant price inflation and global economic and geopolitical instability. The dramatic increase in the price of gold during the 1970s was not so much due to an increase in the value of gold but rather to a decrease in the value of the dollars used to buy gold. According to a formal gold standard, the amount of currency issued by a country was linked to the value of the gold held by the Government.
Gold remained fixed at a few cents above this price until the ravages of the Great Depression 100 years later. The United States government tried to resolve this problem through laws of Congress of 1933 and 1934 that put an end to the conversion of paper notes into gold and made it illegal to own gold coins and ingots. These 179 years of history are largely a record of government attempts to control the supply and demand of silver and its price in U.S. dollars relative to the established price of gold.