The History of Gold

Gold has occupied a unique social status for millennia. It has a long history as a valuable metal and its history is far from over.

From the ancient Egyptians to the modern U.S. Treasury, there are few metals that have had such an influential role in human history as gold.

Why is gold so important? What inherent value is held by gold? Will gold continue to be valuable in the future? Today, I’m going to answer those questions and share with you the history of gold.

Ancient civilizations and their love of gold

Human fascination with gold is as old as recorded history. We don’t know for sure when the first human picked up a gold nugget and thought, “Hey, this is pretty cool.” However, flakes of gold have been found in Paleolithic caves dating back as far as 40,000 B.C.

Most archaeological evidence shows that humans who came into contact with gold were impressed by the metal. Since gold is found all over the world, it has been mentioned numerous times throughout ancient historical texts.

Egyptians and gold

The first firm evidence we have of human interaction with gold occurred in ancient Egypt around 3,000 B.C. Gold played an important role in ancient Egyptian mythology and was prized by pharaohs and temple priests. It was so important, in fact, that the capstones on the Pyramids of Giza were made from solid gold.

The Egyptians also produced the first known currency exchange ratio which mandated the correct ratio of gold to silver: one piece of gold is equal to two and a half parts of silver. This is also the first recorded measurement of the lower value of silver in comparison to gold.

The Egyptians also produced gold maps – some of which survive to this day. These gold maps described where to find gold mines and various gold deposits around the Egyptian kingdom.

As much as the Egyptians loved gold, they never used it as a bartering tool. Instead, most Egyptians used agricultural products like barley as a de-facto form of money. The first known civilization to use gold as a form of currency was the Kingdom of Lydia, an ancient civilization centered in western Turkey.

Ancient Greeks and gold

Later on in history, the ancient Greeks viewed gold as a social status symbol and as a form of glory amongst the immortal gods and demigods. Mortal humans could use gold as a sign of wealth and gold was also a form of currency. Contrary to what you might think, the Olympics tradition of giving out gold medals to victors did not begin until the modern Olympics and has little to do with Greek tradition.

The Bible and gold

Gold is also mentioned in the Bible, where Genesis 2:10-12 describes the lands of Havilah, near Eden, as a place where good gold can be found. Incans, Aztecs, and numerous other civilizations also used gold prolifically throughout the early history, including it in religious ceremonies and in famous architectural designs.

There’s one common trend here across all ancient civilizations: gold is a status symbol used to separate one class from another. From emperors to priests to the elites and upper middle class, those who held gold also tended to hold power.

1792 – The United States adopts a gold and silver standard

In 1792, the United States Congress made a decision that would change the modern history of gold. Congress passed the Mint and Coinage Act. This Act established a fixed price of gold in terms of U.S. dollars. Gold and silver coins became legal tender in the United States, as did the Spanish Real (a silver coin of the Spanish Empire).

At the time, gold was worth approximately 15 times more than silver. Silver was used for small denomination purchases while gold was used for large denominations. The U.S. mint was legally required to buy and sell gold and silver at a rate of 15 parts silver to 1 part gold. As a result, the market rate for gold rarely varied beyond 15.5 to 1 or 16 to 1.

That ratio would change after the Civil War. During the Civil War, the U.S. was unable to pay off all its debts using gold or silver. In 1862, paper money was declared to be legal tender, marking the first time a fiat currency (not convertible on demand at a fixed rate) was used as an official currency in the United States.

Just a few years later, silver was officially removed from the U.S. Mint’s fixed rate system in a bill called the Coinage act of 1873 (and criticized by American citizens as the Crime of ’73). This removed the silver dollar from circulation, although coins worth less than $1 still contained silver.

The United States would never use silver dollars again. Throughout the late 1800s, the issue remained an important political topic. In 1900, the gold dollar was declared to be the standard unit of account in the United States and paper dollars were issued to represent the country’s gold reserves.

1870s gold rushes

A number of gold rushes occurred throughout the 1800s. Since a single gold nugget could make someone a millionaire, prospectors rushed to far-flung corners of the planet in search of riches

Notable gold rushes included:

North Carolina (1799): The first major gold rush in America occurred in 1799 in North Carolina, when a young boy discovered a massive 17 pound gold nugget in Cabarrus County.
California (1848): The San Francisco 49ers football team is famously named after the gold rush of 1848/49 in California. Prospectors came from across the world to San Francisco. Before 1848, only about 1,000 people lived in San Francisco. Within two years of gold being discovered in the region, the population had swelled to 25,000. There were so many recent migrants to San Francisco, in fact, that the massive San Francisco harbor was filled with empty ships. Nobody wanted to sail away from the bustling boomtown!
Klondike (1896): Gold was discovered in the Klondike River in the Yukon Territory and in other parts of British Columbia. Prospectors travelled far north and fought harsh winters to claim their fortune in the land of the midnight sun.
Australia (1850s onward): Australia hosted a number of major gold rushes throughout the latter half of the 19^th century. Gold was discovered in New South Wales and Victoria in the 1850s and in Western Australia in the 1890s. Gold rushes helped to populate empty areas of the Australian Outback. Towns throughout Australia owe their existence to the gold rushes of the 1800s.

1944 – Bretton Woods pegs the global price of gold

The two World Wars wreaked havoc on the gold standard and world financial markets. Of course, it didn’t help matters that the Great Depression occurred in between those two wars.

After decades of war and conflict, world leaders came together under the Bretton Woods Agreements. This system created a gold exchange standard where the price of gold was fixed to the U.S. dollar. This was a radical experiment that had never been done before and it made the United States very powerful on the world’s markets.

The U.S. dollar was chosen for the Bretton Woods system because the United States was easily the world’s strongest economy coming out of the Second World War. Unlike previously strong European nations, the United States did not have to repair infrastructure or fix towns that had been bombarded throughout the war.

The day the price of gold was pegged to the U.S. dollar is one of the most important points of U.S. history because it helped make the United States the global superpower it is today.

1970s – Gold standard ends with the Vietnam War

In 1944, gold was fixed at $35 per ounce for the foreseeable future. In the early 1970s, another war – the Vietnam War – caused the gold exchange standard to collapse. America’s budget was in ruin and in 1971, President Nixon suddenly decided to end the Bretton Woods system with a moment known in history as the Nixon Shock.

Between 1971 and 1976, a number of attempts were made to salvage the gold standard. However, the price of gold continued to rise beyond what any currency could sustain.

That’s why many gold pricing charts begin around 1970. Between 1970 and 1971, the price of gold was relatively flat before skyrocketing to a record high of $800+ in 1980. If you were to look at a gold pricing chart from the 1940s to 1970s, it would be a flat line of $35 per ounce, which is why you don’t see too many gold pricing charts that extend before 1970.

Present day – no countries in the world use a gold standard

As of 2014, no countries in the world use a gold standard. In other words, no currency in the world is backed by gold.

The last major currency to use a gold standard was the Swiss Franc, which used a 40% gold reserve until the year 2000.

Of course, that doesn’t mean that countries have sold all their gold or that their currencies are based on nothing. Most countries in the world maintain large gold reserves in order to defend their currency against possible future emergencies.

America’s gold reserves are famously held at Fort Knox, Kentucky. The heavily-defended location holds an unknown amount of gold, as the amount is officially classified by the United States government. However, it’s widely accepted that the United States holds more gold bullion than any other country in the world (approximately 1.3 times as much gold as the next leading country, Germany).

As with anything labeled “classified” in the United States, there are plenty of conspiracy theorists who argue that Fort Knox is actually empty and that the gold is held in some secret location or does not exist at all. You’ll have to figure that out on your own.

Modern day – Gold investment rises

Gold has been seen as a smart investment for millennia. However, the use of gold as an investment became hugely popular after the end of the Bretton Woods system in 1971.

Since the 1970s, the price of gold has steadily increased. In 1970, gold was pegged at $35 per ounce. In August 2011, that number had risen to nearly $2000 per ounce. However, the years in between were not a smooth upward slope and gold – like any other investment – has gone through a number of ups and downs over the past few decades.

When looking at gold investment charts, it’s important to recognize inflation. Some charts show the price of gold as virtually a straight line from the bottom left corner of the graph to the top right corner.

However, the price of gold has experienced two major spikes since the 1970s: once in 1980 and the other in 2011.

Furthermore, due to inflation, paying $35 for an ounce of gold in 1970 wasn’t the same as paying $35 for an ounce of gold today. Judging by the Purchasing Power Calculator – which looks at how CPI has changed over the last few decades in the United States – $35 in 1970 would be worth approximately $200 today.

By carefully weighing all of this information and current trends, you can build an accurate view of the present value and future value of gold.

2000s and 2010s – Gold in modern times

Over the past two decades, gold has gone through a number of major changes. August 1999 was a landmark moment in the price of gold as it dropped to a price of $251.70. This occurred after central banks around the world were rumored to be reducing their gold bullion reserves and at the same time, mining companies were selling gold in forward markets.

By February 2003, outlook on gold had reversed. Many viewed gold as a safe-haven after the U.S. invasion of Iraq in 2003.

Geopolitical tensions between 2003 and 2008 continued to elevate the price of gold. And in 2008, the global economic crisis increased the price of gold even further. After reaching a high of over $1,900 per ounce in 2011, gold has fallen to between $1,200 to $1,400 in recent years.

Why is gold valuable?

This simple question comes with a complex answer. There’s no single reason why gold has been seen as an exceptionally luxurious metal throughout all of human history. However, the high value of gold is generally accepted to be the result of a combination of factors.

Reasons why the price of gold is high include:

- Scarcity: Gold is difficult to find and extract in the real world. In the late 1800s, any town with a single gold nugget was instantly transformed into a gold rush town. Today, only about 2,000 tons of gold are created per year. To put that number into perspective, about 10,500 tons of steel are produced in the United States every hour.
- Physical characteristics: Gold has some phenomenal physical characteristics – especially when used in electrical applications. It’s an excellent conductor, for example. Furthermore, no metal is more malleable and ductile than gold. That means that just a small bit of gold can be hammered into many smaller sheets. In fact, one ounce of gold can be stretched to form a wire that is 50 miles long. Gold plated copper wire sounds expensive but it only requires one ounce of gold to plate a 1,000 mile long thread of copper.
- Aesthetic attributes: One of the simplest reasons why gold is valuable is that it looks cool. Over time, rulers have loved displaying gold in throne rooms, tombs, and on top of Egyptian pyramids. Its unique coloring and luster have fascinated humans for millennia.
- Wealth storage: The times when gold has increased in value are almost always coupled with extreme economic circumstances. These extreme circumstances cause people to lose faith in their country’s currency and buy a more concrete form of wealth: gold. Gold is seen to be a good wealth storage tool around the world.

What Does the Future Hold for Gold?

Predicting the future price of gold, like any commodity, is fraught with uncertainty. Many have tried, and many have failed. The gold market is influenced by a complex array of factors, and even the most seasoned investors and analysts can struggle to make accurate predictions.

Key Factors Influencing Gold Prices:

1. Economic Conditions:

Inflation: Gold is often seen as a hedge against inflation. When inflation rates rise, the value of paper currency declines, making gold more attractive.
Interest Rates: Lower interest rates can lead to higher gold prices as the opportunity cost of holding non-yielding gold decreases.
Economic Uncertainty: During times of economic turmoil or geopolitical instability, investors flock to gold as a safe haven, driving up its price.

2. Supply and Demand:

Mining Production: The amount of gold mined each year affects supply. Major discoveries or mining innovations can increase supply, potentially lowering prices.
Jewelry and Industrial Demand: A significant portion of gold demand comes from the jewelry industry and various industrial applications.

3. Currency Fluctuations:

U.S. Dollar Strength: Gold prices are often inversely related to the strength of the U.S. dollar. A weaker dollar makes gold cheaper for other currency holders, increasing demand.

4. Investment Trends:

ETFs and Institutional Investment: The rise of gold exchange-traded funds (ETFs) and increased participation by institutional investors can significantly impact gold prices.
Retail Investment: Changes in retail investor behavior, driven by market sentiment and trends, also play a crucial role.

Future Outlook for Gold:

1. Technological Advancements:

Blockchain and Digital Gold: Innovations like blockchain technology could lead to new forms of gold investment, such as tokenized gold, providing more liquidity and accessibility.
Mining Technology: Advancements in mining technology could alter the supply landscape, either increasing efficiency or enabling the discovery of new gold deposits.

2. Environmental and Ethical Concerns:

Sustainable Mining Practices: As environmental concerns grow, there is increasing pressure on mining companies to adopt sustainable practices. This could impact supply and production costs.
Ethical Sourcing: Consumers and investors are becoming more conscious of the ethical implications of gold mining, potentially influencing demand for ethically sourced gold.

3. Geopolitical Dynamics:

Global Trade Relations: Trade tensions and geopolitical conflicts can create uncertainty, driving investors towards gold.
Central Bank Policies: Actions by central banks, including gold reserves management and monetary policy shifts, can have substantial impacts on gold prices.

Expert Opinions and Predictions:

Bullish Views: Some experts believe that gold will continue its upward trajectory, potentially surpassing $2,500 per ounce, driven by ongoing economic uncertainties and inflation concerns.
Bearish Views: Others caution that if economic conditions stabilize and interest rates rise, gold prices could retreat, possibly dipping below $1,500 per ounce.

Practical Advice for Gold Investors:

1. Diversify Your Sources:

Trust multiple experts and sources rather than relying on a single prediction. Track their historical accuracy and methodologies.

2. Stay Informed:

Regularly update your knowledge of the factors affecting gold prices, including economic indicators, geopolitical events, and market trends.

3. Long-Term Perspective:

Consider holding gold as part of a diversified investment portfolio to hedge against economic volatility and inflation over the long term.

4. Monitor Market Sentiment:

Pay attention to market sentiment and trends in gold ETFs, institutional buying patterns, and retail investor behavior.

The future of gold remains uncertain, influenced by a myriad of factors from economic conditions to technological advancements. While predicting exact prices is challenging, understanding the underlying dynamics can help investors make informed decisions. Whether gold will hit new highs or face corrections, its historical significance and value as a financial asset ensure that it will continue to play a vital role in the global economy.