We are living throughout one of the most rapidly changing times in human history. Technological advancements are moving in fast forward, and we are all so focused on what’s going on now and what is coming next. What we don’t realise is that the past – our history – holds so much wisdom and information that can guide our future decisions.
“You have to know the past to understand the present.” – Dr Carl Sagan
Canadian billionaire Eric Sprott famously said, “the history of the world is the story of gold.” Unique in its endurance and rarity, gold has been valuable throughout the history of mankind. From the very beginning, something about gold attracted civilisations all over the world without those civilisations ever having contacted each other. Its value was inherent and instinctual to all who came across it.
Gold as money
Gold is believed to have been first discovered in streams and rivers with its beauty and lustre capturing the eye of ancient cultures. Gold was first found at the surface level of rivers in Asia Minor (a geographic region located in the south-western part of Asia comprising most of present-day Turkey).
Cultures in modern-day Eastern Europe have been using gold as far back as 4000 BC to make decorative objects. Because of gold’s properties (i.e., longevity and immunity to erosion), it became a symbol of immortality and power in ancient cultures and was used in religious artifacts. It was also utilised in art and jewellery because of malleability, ductility, and aesthetic value. This was its primary use for the next couple thousand years, until 1500 BC when the ancient empire of Egypt used gold as the first official medium of exchange. They created what was called the Shekel – a coin made from a naturally occurring alloy called electrum (a mix of gold with silver).
The first minting of pure gold coins began around 560 BC in the kingdom of Lydia in Asia Minor. In 50 BC the Romans began issuing a gold coin called the Aureus, which comes from the Latin word for gold, Aurum. This is where the gold chemical symbol of Au comes from to represent gold on the periodic table of elements.
Amongst all the metals that could have been chosen by past civilisations as their currency, they chose gold for several reasons:
- Portability: gold is easy to carry, transport and shape into different sizes based on value.
- Validity: gold’s mysterious ability to attract people all over the world independently of each other allowed it to become a medium of exchange accepted anywhere in the world.
- Longevity: unique in its endurance, gold is stable and does not corrode when exposed to the elements of nature such as wind and water.
- Scarcity: gold is somewhat rare, meaning that it was scarce enough to be valuable, while still being available enough that a reasonable number of coins could have been created for commerce.
In 1066 AD, William the Conqueror became the first Norman King of England and with his reign began a new metallic coin-based system of currency in England. In 1284, Great Britain issued its first gold coin, the Florin. Across Europe in modern-day Italy, the Republic of Florence issued the first gold Ducat. The Ducat became the most popular gold currency in the world for the next five centuries.
In 1787, the first U.S. gold coin was struck by a goldsmith and a few years later in 1792, the U.S. government passed the Coinage Act, placing the country on a bimetallic silver-gold standard, which stood in one form or another until 1976, when the U.S. finally abandoned the gold standard to be entirely based on fiat money.
The gold rushes
The 19th century was an era of industrialisation and social and political change around the world. Revolutions raged across continental Europe, famine ravaged Ireland in the mid-1800s and there was much displacement due to international conflicts such as the Opium Wars, which uprooted tens of thousands of people. Because of these conditions, news of gold signalled a sign of hope and opportunity for a better life and future.
In 1848, a man named John Marshall found gold flakes in a stream in California. This discovery led to the largest migration of people the US had ever seen and became known as the California Gold Rush. Some settlements would boom before quickly turning into ghost towns. Others, however, would develop into well-established metropolises. San Francisco, Johannesburg, and Melbourne were all built on solid gold foundations.
The 1851 discovery of gold at Poverty Point in Ballarat, Victoria, prompted Australia’s biggest gold rush and established Melbourne as a world-leading city. The globalisation and development of gold rushes accelerated the mobility of goods, people, and credit.
In 1868, George Harrison, a man from South Africa, discovered gold in his backyard, and since then 40% of the world’s mined gold has come from the African nation.
The rise and fall of the gold standard
The gold standard was a system under which nearly all countries fixed the value of their currencies in terms of a specified amount of gold or linked their currency to that of a country that did. In other words, in such a monetary system, gold backs the value of money. With this monetary system, an individual holding some amount of paper money could go to a bank and exchange that money for a fixed amount of gold. It signified an agreement between society and its monetary institutions that the currency they spend and earn was equal to gold.
Between 1696 and 1812, the development and formalisation of the gold standard began as the introduction of paper money posed some problems. Paper money began to be valued too highly in gold, while there were also constant problems of supply imbalances between both gold and silver to back the paper money. As a result, one metal was chosen to back the value of money, which was gold, beginning the gold standard.
By 1821, England became the first country to officially adopt a gold standard. The process of colonisation and globalisation of the world brought large discoveries of gold. The influx in the supply of gold helped the gold standard flourish and remain intact well into the next century. As all trade imbalances between nations were settled with gold, governments began to stockpile gold for more difficult times. Those stockpiles still exist today.
The international gold standard began in 1871 when Germany also adopted the standard alongside England. By 1900, most of the developed nations were linked to the gold standard.
The period from 1871 to 1914 was the golden age of the gold standard. It was a stable period in the world politically, which enabled governments to work very well with each other. This all changed forever with the outbreak of World War I in 1914.
When the war broke out, the U.S. and European countries suspended the gold standard so they could print enough money to pay for their military involvement. With World War I, political alliances changed, international indebtedness increased, and government finances deteriorated. The world needed something more flexible to base on their global economy. This enabled nations to adjust the amount of money and interest rate in the economy if needed, leading many to abandon the gold standard. Once the gold standard was dropped, countries began printing more of their currencies, which resulted in inflation but also more economic growth.
In 1971, US President Richard Nixon changed the price of an ounce of gold to $US38 and no longer allowed the Federal Reserve to exchange dollars for gold. This was essentially the end of the gold standard, but it wasn’t until 1976 that the gold standard was abandoned completely, and gold was officially free. Under a free-market system, gold should be viewed as a currency like the euro, pound, or U.S. dollar.
The gold standard had multiple advantages:
- Fixed assets: The benefit of a gold standard is that a fixed asset backs the money’s value.
- Provides a self-regulating and stabilising effect on the economy: Under the gold standard, a government can only print as much money as its country has in gold.
- Discourages inflation and debt: Inflation happens when too much money chases too few goods. The gold standard also discourages government budget deficits and debt, which can’t exceed the supply of gold.
- Rewards productive nations: If a country receives gold when it exports, it has more gold in its reserves. That means it can print more money, in turn boosting investment in its profitable export businesses.
Gold performance during recessions
Gold has undoubtedly withstood the test of time, reliably holding its value during wars and economic downturns. In modern times, gold tends to thrive when the rest of the world is faltering.
In early 1980 gold hit a then-record high prompted by high inflation due to strong oil prices, the Soviet intervention in Afghanistan, and the impact of the Iranian revolution.
During the financial crisis in 2011, gold soared due to rising inflation, debt, the US dollar, and unrest in the Middle East.
During the peak of the COVID-19 pandemic, the global investment in gold rose. Gold is seen as a ‘safe haven’ asset. The value of gold has doubled over the last decade and is currently at just over $US1,800 an ounce. Gold hit an all-time recorded high in 2020 at the peak of the COVID-19 pandemic lockdown, rising above $US2,000 an ounce for the first time.
Investment in gold today
As of September 2021, Australia has become the biggest gold producer in the world, overtaking China for the first time. Gold’s current value of approximately $US1,800 an ounce shows a 20-30% increase compared to two years ago. It’s expected that gold prices will continue to rise.
Nauggets CEO Dhruva Acharya says as more people start to recognise the value of gold, it’s important to consider it as an investment option and even as a spending method for your day-to-day.
“Gold is perhaps more relevant now than it has ever been. We are facing a period of high inflation, which will be around for a while. People are investing in cryptos that are volatile and are definitely not rare anymore. I think it is the perfect time for gold to make a comeback,” says Acharya.
“Gold has not been updated for modern times. While technology has made it easy for people to buy stocks and crypto, sadly gold has been left out. It is the oldest currency that has stood the test of time and it deserves more love and respect – something we plan to bring to the table via gold-backed debit cards and our mobile app.”
In an ever-changing world, obsessed with the latest stock, altcoin, or crypto, looking back at our history reminds us of the longstanding use and value of gold. We can learn a lot from our ancestors for their respect and reverence for such a special and precious metal. If gold is the story of mankind – new technologies such as crypto are but a nanosecond.
The world is constantly changing, but the inherent value of gold remains.
To learn more about the history of gold, and Nauggets CEO Dhruva Acharya’s comments, listen to our podcast episode on the topic.