Why Is Gold Valuable? History Of Gold

Why Gold Valuable?

By: Abby Hindle, Halal Incorp

Gold (symbol Au, from the Latin aurum) is a chemical element found naturally in its native form in nuggets, grains or rock veins. Gold is a fairly rare element and has been used throughout history as decoration and status symbol in art and architecture, amongst other things. It has also been used frequently as a form of currency. Although gold coins ceased to be minted in the 1930s and the gold standard fell out of use after 1971, gold retains its value to this day.  

Gold has many properties that make it desirable. It is durable to the point of being almost indestructible, and extremely malleable, which makes it a metal well suited for metal work. This is evidenced by the creation of gold leaf, which is gold that has been hammered into extremely thin sheets by a process called gold beating and used for gilding in art and architecture and other forms of decoration. This, in addition to its eye-catching colour, is part of why gold has been so valued as a material for so long. 

It has had a continuous presence as a status symbol since ancient human civilisations. Hoards of gold treasures have been found dating back as far as 5000 BC. Several prehistoric golds finds dating back to this period were made in Bulgaria, in places such as Hotnitsa, Durankulak, and Lake Varga, although the Lake Varga discovery is often called the oldest collection as it is the largest. Judging from archaeological finds, gold began appearing in Ancient Egypt at the beginning of the pre-dynastic period, at the end of the 5th Millennium BC, with smelting being developed by the Egyptians in the 4th Millennium BC.

The Ancient Egyptians initially used it in bars to set weights in the exchange of goods, but eventually, in 3100 BC Pharoah Menes introduced gold into the Egyptian economy. The oldest map of a gold mine currently known by historians was created in the 19th dynasty of Ancient Egypt, around 1320-1200 BC. 

Gold isn’t rare. So why is it valuable?

Why Gold Valuable?

The first use of gold as coinage we know of came about around 600 BC when King Alyattes of Lydia (a kingdom in what is now modern-day Turkey) made the first recorded coin mint. The coin was an alloy of silver and gold called electrum which had imprints placed on them to identify the issuer to provide a guarantee of their value. The technology passed to the Greeks through a Greek Princess called Hermodike II, likely one of King Alyatte’s wives. Other cultures followed quickly. Roman society used coins as currency for up to a century before the official introduction of gold coins in 300 BC. Almost all coin usage today descends from the introduction of King Alyattes’ gold coins. 

Gold made its way to Europe through other civilisations, such as Ancient Greece, Carthage, and Rome, and continued to integrate into European society. Over the course of the Middle Ages, various European societies created their own gold coins; the Italian Florin was one of the most common coins on the continent. A rival, the Venetian Ducat, was created after the Byzantine Hyperpyron coin fell in value, having been gradually debased since the 1030s until its gold content was reduced to near zero, and was one of the most common coins across Europe for 500 years.

Gold was also one of the motivations for the colonisation of the Americas by European powers; gold was considered decorative but of little practical value by many South American cultures and was used commonly in ornaments. So much gold was brought back from European looting of native palaces, temples, and graves that it caused economic stagnation across Europe. 

By the Early Modern period, gold production had been refined and had grown increasingly sophisticated. Large amounts of gold were initially stored in royal mints, but after Charles, I seized large amounts in involuntary loans, merchants moved their gold to private goldsmiths. This was the start of the paper money we know today; receipts were issued to the depositors to ascertain ownership of the gold being deposited and after a time people began exchanging these receipts instead of the actual assets out of convenience. 

Continuing on to the modern period, the gold standard was introduced in the 1870s. It was used as the basis for the international monetary system; a standard economic unit was attached to a fixed quantity of gold. This lasted until the 1920s and the economic effects of World War One caused many countries to abandon the gold standard. The gold standard was reintroduced in many places in the interwar period, but the Great Depression in America killed it off for good. It was replaced for a time with the Bretton Woods system,  but with the decline of the United States as an economic power, this system also fell out of favour.

Switzerland was the last country to stop tying its currency to gold. Although gold is no longer minted as coins, and although the gold standard is no longer in use, gold is still accepted today as an international method of payment. 

Why Gold Valuable?

Gold production rose significantly in the 20th century; according to GFMS, a research and consultancy company that focuses on the precious metals market, by 2012 around 174 000 tonnes of gold had been mined throughout human history. 75% of the world’s gold that is currently accounted for has been extracted since 1910, and two-thirds of that were extracted in the period since 1950. Around 45% of gold today is in the possession of governments and central banks in liquid reserves as reserve assets.  World consumption of gold is made up of around 50% coming from jewellery, 40% in investments and 10% in trade. The price of gold today is determined via trade in gold and derivatives, but the London Gold Fixing process sets a daily standard for the value of gold.

Gold, like other precious metals, is measured by troy weights and grams. In September 2017, gold was valued at $42 per gram and at $1300 per troy ounce. The term ‘karat’ is one most people have heard in connection with gold, although some may not be familiar with what it is actually used to indicate. Karats are used to ascertain the amount of gold in an alloy, with a higher number being equal to a higher proportion of gold.

A measurement of 24 karat means something is pure gold. Pure gold, while aesthetically appealing and commonly assumed to be the most desirable, is relatively soft in its composition and thus is not often used. Most experts in jewellery, for example, would advise against the purchase of 24 karat gold jewellery, as it is prone to be bent and scratched due to pure gold’s malleability. As a result, gold is usually used when alloyed with other metals – silver, copper and a little zinc are common. This makes it harder and less pliable. Gold continues to be popular now for the same reasons it has been popular throughout history; its beauty, its workability, and its comparative rarity all make the metal highly valuable. 

Why Gold Valuable? Gold has had many uses throughout history, as decoration, status symbol and currency. Although its use as currency has fallen in modern times, it still retains its value and is a highly desired material across the world for its other applications. 

Disclaimer: The view of the author does not necessarily represent the views of Halal Incorp

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