3  Except in exceptional circumstances, such as a near-term market breakdown, which creates a severe lack of liquidity and warrants intervention. 4  For example, under the price-specie flow mechanism, if a country ran a trade surplus, gold inflows would occur, raising the price level and thus causing imports to increase and exports to decrease until the balance of trade was equilibrated.
5  More generally, the gold standard suffered from the fact that the money supply was dependent on the supply of gold. Inadequate gold supply led to deflation in the 1880s, which was only alleviated by major gold discoveries in South Africa, Western Australia, and Canada in the following decade. Even then, concerns with respect to the supply of gold remained.