When central banks buy gold, this affects the supply and demand of the national currency and can cause inflation. This is largely due to the fact that banks rely on printing more money to buy gold, creating an excess supply of fiat currency. Although there is undoubtedly a relationship between gold prices and the value of a fiat currency, it is not always an inverse relationship as many people assume. Most critics of the fact that gold is a tremendously overvalued commodity seem to think that it is not a bubble because gold is a “currency”.
The functional reason why central banks do not opt for the gold standard is that gold is a poor circulating currency, since it is not very durable and is easy to counterfeit. That far exceeded the fair value of gold that the United States was able to hold it for 37 years, until August 15, 1971, when Richard Nixon decided to completely abandon the gold standard instead of revaluing it. Already in the Byzantine Empire, gold was used to support national currencies, that is, those considered legal tender in their country of origin. Until the gold standard was abandoned, countries couldn't simply print their fiat currencies ad nauseam.
A country that moves from hyperinflation to the gold standard is not a leader in rational economic thinking. Investors often buy large quantities of gold when their country is experiencing high levels of inflation. There is also the popular game of moving from gold to silver, depending on which one has the most supply or who has a corner in the world market. If you look at gold prices, you'll see that it varies like a commodity, and supply responds to prices.
The truth is that gold is not a currency because it does not meet the economic definition of “currency” and will never be able to do so in the modern world. Instead of relying on the judgment of a central banker to determine the money supply, the gold standard guarantees that there will be a shortage of gold-based money and will precipitate recessions followed by booms as supply returns. Therefore, a country that exports gold or has access to gold reserves will see an increase in the strength of its currency when gold prices rise, as this increases the value of the country's total exports. To use gold as a standard, a country has to set the value of gold high enough that people (or countries) are willing to keep their currency instead of gold.
The means of degradation is said to be the removal of precious metals from money, mainly, minus gold and silver.
