In 1926, Gold Cost $20.67 an Ounce — by Law

A hundred years ago the price of gold was not set by a market. It was written into U.S. law. Here is what that meant, and what an ounce costs now.

If you walked into an American bank in November 1926 with a twenty-dollar gold coin, you were holding almost exactly one troy ounce of gold. That was not a coincidence. The Gold Standard Act of 1900 defined the U.S. dollar as 25.8 grains of gold, nine-tenths fine. Do the arithmetic and one ounce of pure gold equals about $20.67.

That number did not move with the news. It did not move in 1926, a boom year, and it had not moved for decades. Paper money could be exchanged for gold at that fixed rate, so the dollar was, in a very literal sense, "as good as gold."

Why a fixed price felt safe

For savers in 1926 the system looked rock-solid. Prices in the United States were fairly stable through the middle of the decade, banks were lending, and the stock market was climbing. A dollar put away in 1926 was expected to buy roughly the same amount years later.

What happened next

The Great Depression broke the system. Beginning in March 1933, a series of executive orders, new laws and Supreme Court rulings took the United States off the old gold standard. In 1934 the official price was reset to $35 an ounce — overnight, the dollar was worth less gold. Decades later, in 1971, the last link between the dollar and gold was cut, and the price was left to the market.

In other words, an ounce of gold bought in 1926 has outpaced ordinary inflation about ten times over. A twenty-dollar bill kept in a drawer since 1926 still says twenty dollars — but it buys about what a one-dollar bill bought then.