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. Being prevalent across the face of the globe, innumerable civilisation have been drawn to its beauty and rarity (In the present day approximately 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.) and fixed their different currencies to the mineral’s star, going back as far as the Paleolithic caves dating back as far as 40,000 B.C. However 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 to the point where the capstones of the Great Pyramids were made of solid gold.
The Egyptians civilisation 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. Despite this well documented love of 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 centre in western Turkey.
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. This belief in the nearly godlike power of the precious metal proved one of the central pieces of connective tissue in societies both ancient and modern: that 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.
The European exploration of the Americas was fuelled in no small part by reports of the gold ornaments displayed in great profusion by Native American peoples, especially in Mesoamerica, Peru, Ecuador and Colombia. The Aztecs regarded gold as the product of the gods, calling it literally “god excrement” (teocuitlatl in Nahuatl), and after Moctezuma II was killed, most of this gold was shipped to Spain. Ironically however, for the indigenous peoples of North America gold was considered useless and they saw much greater value in other minerals which were directly related to their utility, such as obsidian, flint, and slate.
One by one countries across the globe began to tie their currencies to so-called gold standard in the form of bills (that mature into gold coin) and gold certificates (convertible into gold coin at the issuing bank) added to the circulating stock of gold standard money in most 19th century industrial economies. In preparation for World War I the warring nations moved to fractional gold standards, inflating their currencies to finance the war effort. Post-war, the victorious countries, most notably Britain, gradually restored gold-convertibility, but international flows of gold via bills of exchange remained embargoed; international shipments were made exclusively for bilateral trades or to pay war reparations.
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 these decades of war and economic strife, world leaders came together in 1944 for the Bretton Woods Agreements. A system which made the previously unthinkable step of creating a gold exchange standard where the price of gold was fixed to the U.S. dollar. This was a radical experiment and it served to make the United States the effectively the most powerful player on the world’s markets for decades. 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.
In 1944, gold was fixed at $35 per ounce for the foreseeable future. This system lasted basically unchanged until the early 1970s, where another war (the Vietnam War) caused the gold exchange standard to collapse. America’s budget was in ruin and in 1971, President Nixon unexpectedly decided to end the Bretton Woods system in a moment that sent deep shockwaves throughout the financial world.
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 As a result the concept of the gold standard was reluctantly abandoned and Fiat currency now fills most monetary roles. Switzerland was the last country to tie its currency to gold; it backed 40% of its value until the Swiss joined the International Monetary Fund in 1999. Since the abandoning of the gold standard, gold has enjoyed a far more rocky relationship with the markets than some might expect. 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 rumoured 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 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, however considering the potential for further economic crisis in the near future gold’s perceived value could return to its position of dominance.