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| Over the centuries, Gold has stirred mankind’s passions for power and glory, for beauty, for security, and even for immortality. Gold has been an icon of greed, a vehicle for vanity, and a potent constraint as a monetary standard. No other substance has commanded such veneration over such a long period of time. |
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| The generally recognised cradle of civilization - Sumeria, based on the capital Ur in the Euphrates & Tigris valley, arose around 6000BC and lasted until approximatelyimately 3000BC. Agriculture was developed, and metals such as Cu, Ag, Bronze and Gold were worked. |
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| The Egyptians, who mined about 1 ton of Gold per year at their peak, it has been estimated, produced in total - 750 tons, mainly from Nubia and deposits from the upper Nile (Luxor 645km from Cairo to Khartoum 2000km further on), also Reef deposits in Yemen across the Red Sea at Saba (Sheba). It was not used as money, but simply as personal adornment & decoration for the Pharos - a royal prerogative. The earliest Egyptian Jewelry dates from around 3200BC. |
| Supposedly, when Moses came down from Mt. Sinai to deliver the 10 commandments, he found the Jews in a delirium worshipping a Golden calf. There are over 400 references to Gold in the Bible. |
| Gold gleaned from the walls of King Solomon's Great Temple, when the Queen of Sheba came to visit Solomon, she paid tribute an estimated 3 tons of Gold. When Howard Carter in 1922, unearthed the tomb of Tutankhamen, the boy king who died ~1346BC, the Gold recovered was twice that of the holdings of the Egyptian Royal Bank |
| Other ancient civilizations that possessed and worked Gold were the ancient Hebrews who moved from Sumeria to Palestine, the Minoans of Crete who survived from 2000BC to 1450BC when an earthquake & volcanic eruption apparently caused their demise. The Mycenaean's and Achaens from 2000BC to 1100BC were involved in the Trojan wars. |
| Around BC1000 this great seafaring civilization arose in the Eastern Mediterranean, they traded and mined Gold from Spain, North Africa and West Africa. They established the ancient city of Carthage in North Africa, which came to dominate their empire, Hannibal was one of their great military leaders. Carthage fell to the Romans in 146BC. |
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| The Etruscans of Northern Italy arose around 800BC, they extracted Gold from the River Po valley and from deposits in France. The Romans overran them in 4th century BC. |
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| Around 680BC the Lydian's it appears were the first people to invent and use coins. Croesus "the father of money" was one of their early kings. They developed a Gold coin called the "Stater" for the largest denomination, for smaller amounts it was subdivided into 3rds, 6ths & 12ths. Silver was also used for smaller amounts or denominations, in other words it was a bimetallic system, one that has been in common use now for more that 2000 years. This civilization grew up as a results of the alluvial Gold in the River Pactolus and it's smaller tributaries in Turkey. The legend of Jason and the Argonauts and the search for the Golden Fleece has it's origin it this area. |
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| Darius 521-485BC, the Persian King, added his own likeness to his Gold coins, and called them "Darics", this coin spread far and wide, from the Baltics to Africa and throughout Central Asia. The ratio of Gold to Silver was 1 as to 13.5. His annual tribute from his conquered domains was estimated at 250 tons of Silver & 120 tons of Gold. |
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| Around 360BC, Philip II of Macedonia, father of Alexander the Great, opened up mines in the Balkans region for Gold & Silver. He was soon minting sufficient coins for all his current needs as well as future military expansion. The ratio of Silver to Gold was 10 to 1. The portrait installed on the coinage was Hercules, but everyone agreed it looked remarkably like Alexander, his coinage lasted over 150years from the Mediterranean to India. When he captured the former capital of Persia in 330BC, he sent back to Greece nearly 1000 tons of Gold & Silver. He also ransacked the capital of the former Lydian empire Sardis. Subsequently Greek goldsmiths produced some of the most lavish and perfect jewelry in history, it was a classic era of craftsmanship. |
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| Moving on to the Romans in 600BC they began their rise, used slaves to mine large amounts of Gold from deposits in Spain, these deposits are now long worked out, and the environmental changes they wrought were significant, as the Romans employed hydraulic sluicing to move large tonnages of dirt. During this epoch, approximately 5 tons per year from all sources, were mined. |
| The Romans gave us the monetary denomination of the Pound - libra - which is why the Pound Sterling is identified by the £ symbol. In addition the Latin word - denarius came to stand for Penny - d. |
| Finally the term solidus which meant that a coin was pure, and was also a coin which was equivalent to 12 denari. English monetary denominations £ s d derived from these ratios, and lasted from Norman times, until the decimalization of the U.K. in the 1980's. |
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| In 532AD, after 10,000 men had worked for 6 years and used more than 12 tons of Gold in building the Church of St. Sophia in Constantinople, the Byzantine Emperor Justinian could exclaim - "Solomon, I have surpassed thee!" He had originally inherited 320, 000 lbs. of Gold but had used that all up as well. |
| The Byzantine emperors ruled from Constantinople for over 1000 years. By and large they were a decadent, corrupt, conspiratorial, and cruel bunch of people. However the emperors may have debased their regimes morally and politically, but the integrity, purity, fame and acceptability of Constantine's golden bezant was an over-riding preoccupation with all of them. The entire history of the Byzantine Empire is marked by its obsessive focus on Gold, not only as money, but also as an advertisement of unrivalled opulence. Gold served as the key instrument that the emperors used, along with cruelty and repression, to bind together their sprawling, disparate territorial domains. |
| The Golden bezant financed the empire's imports, its armies, and its alliances with other nations. It was in reality "the Dollar of the Middle Ages". The bezant outstripped the dollar in stability and intrinsic value. Indeed, its record has never been equalled or even approached by any other currency, in history. |
| All of this was remarkable in its own way, as long as it lasted, but no hegemony in history has lasted forever. After Constantinople fell to the Crusaders in 1204, the bezant began to loose its purity to debasement and, as a result, it's wide acceptability. |
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| Fifty years later, the rising Italian trading powers of Florence, Genoa and Venice began issuing Gold coins that gained as much repute in their own time as the bezant has enjoyed in its heyday. Indeed, by the middle of the 14th century, citizens of Byzantium were paying their taxes in Gold ducats. |
| Simultaneously, the rising Arab empire was accumulating a massive golden treasure. Their creativity at the task was impressive. They ravaged their defeated enemies, outsmarted their competitors at trade, and opened up a major source of Gold that had contributed a mere trickle over the centuries, before their efforts came into play. |
| The piles of Gold collected as the prize for warfare were enormous. |
| The booty came from Persia, Syria, Egypt, Palestine, and the great westward sweep across North Africa, Spain and from as far away as Southern France, before the Arab army’s relentless march was finally halted there in 732AD. |
| The Arab invaders of Egypt in particular amassed a huge pile of treasure from ravaging the agglomeration of Gold that had lain for thousands of years in the tombs of the Pharaohs. They also reopened old Gold mines in Egypt, Nubia, and Ethiopia, while they carried out exhaustive prospecting expeditions for new alluvial supplies in the mountain streams of those areas. The economic consequences of these conquests were profound, it was not just the booty and the reopened mines, but trade as the Arab ships plied the seas down the East coast of Africa and across the oceans to India and even China in search of profit. They even travelled Northward, through the great river highways of Russia, to the Scandinavian countries, trading merchandise acquired from across the seas for furs, amber, honey and slaves. |
| Efficient trade requires money, money conveys power. Gold serves more purposes than just conspicuous consumption. Less than 50 years after the death of Mohamed, the Arabs minted their own Gold coinage - the dinar issued by the Caliph of Damascus. These coins were of 97% pure Gold and were minted in great quantity, gradually replacing the bezant as the major international currency, circulating throughout the Arab domains and everywhere in Christian Europe as well. |
| The appetite for Gold in the Arabian empire was so voracious, that by the 9th century all their sources could not supply their needs, however luck was with them. As a result of the conquest and settlement of the Northern coast of Africa, they made contact with a source of Gold that had fed the fortunes of Carthage, more than 1000 years earlier. The Arabs never actually possessed the West African Gold mines, but their genius for trade did the job for them. For several centuries they enjoyed a virtual buyers monopoly over the Gold that lay hidden across the Sahara - the Gold Coast. |
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| We now move on the Charlemagne, in the year 800AD, not long after Offa, King of Mercia, had started minting his pennies, Charlemagne as king of the Franks, and victor over the Lombards, travelled to Rome so that the Pope could crown him emperor of the Holy Roman Empire as a reward. |
| He reopened the old Gold mines in Saxony and Silesia and attracted goldsmiths to his court. Plundering Gold from beaten enemies, as always was an important additional source of Gold. For example, when he defeated the Avars in 796AD, an Asian tribe who had founded the first Mogol Empire in AD407, he needed 15 wagons, each pulled by 4 oxen, to carry home the captured booty of Gold and Jewels. |
| All the splendor of his empire, would have been incomplete without a Gold coinage. Charlemagne set his pound equal to 20 shillings and 240 pence and a pound weight to 12 ozs, similar to the Romans before him and like the system English were later to follow. |
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| In 1066 when William the Conqueror arrived with the Norman invasion, Offa's English pennies were so well established, that he rejected a policy of debasement for the English monetary system. Gold coins were so valuable in the Middle Ages that they did not circulate much amongst the common people. For the most part Gold was used by merchants and traders, by tax collectors, and the monarchy and his retinue. |
| The 14th century in Europe was a time of great hardship, crop failures and bad weather lead to a severe famine, epidemics and violent crime were widespread, bloody self-flagellation was the rage, Scapegoats for these disasters were – Jews, lepers, noblemen – were murdered without hesitation. The great Famine as it came to be know was only the fore-runner of worse to come, the Plague – the Black death followed. It is probable that the plague killed a third of the population from India to Iceland, at least 20 million people. The population of Europe would not regain the levels of 1300 until 1550. In 1327, Edward II of England, an avowed homosexual, was slaughtered with a red-hot poker shoved up his rectum. In 1338, the hundreds year war between England and France broke out. There were peasant revolts in Italy, Rome, France, Florence, Ghent, and England. |
| Venice & Florence were 2 of the first European cities to recover from the Black Death, the territories controlled by Venice remitted a million Gold ducats to the Venetians, which paid for many of the palaces on the Grand Canal, such as the House of Gold. (the Ca d’Oro). The marriage of Ferdinand of Aragon to Isabella of Castile in 1469 united Spain, under their leadership, the Spaniards then, finally expelled the Moors. Portugal was also stirring as Henry the Navigator motivated the great explorations of the century. The rounding of the Cape of Good Hope, Magellan’s triumphant discovery of the sea passage from the Atlantic to the Pacific, during his circumnavigation. |
| After some 3,000 years, the total amount of Gold In Europe, in all forms, could be fashioned into a cube of 2 metres. This modest supply meant that even small new discoveries had a magnified effect of the Gold market. It was even called “The Great Bullion Famine of the 15th Century.” At one stage in Germany, Pepper was worth more than it’s weight in Gold. Prices of common commodities declined by 20 to 50% in Europe, from 1400 to 1500, whilst Gold climbed from 23 shillings in 1345 to 40 shillings in 1492. |
| The discovery of the world was what the Renaissance was all about, mathematics, measurement, and perspective. Between 1492 and 1500, the size of the known world more than doubled, 25years later it had more than tripled. The Portuguese established a trading post in South-West Africa in the 1470’s, by 1500 approximately. 700 hundred kilograms a year was moving from Africa to Portugal, a meaningful part of Europe’s 4 ton annual output. |
| I won’t relate the story of Columbus, as it is well known, nor Diaz, or Cortez, Pizarro & Balboa, but by the 16th Century, with the flow of Gold and Silver from the Americas, the economic problems in Europe had reversed from depression to inflation. The total European stock of Gold and Silver in 1500, was 5 times what it was in 1492. By 1600 the amount of Gold plundered by Spain has been estimated at 340 tons and 4000 tons of Silver, and after 100 years it was just beginning to peak. |
| The flood of Gold, coupled with the introduction of bank promissory notes in the 17th Century did not help the basic instability of the European economy. Suddenly there were all sorts of money floating around in circulation. Modern banking and international trade depends upon 2 things: A recognized medium of exchange and a standard of value. |
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- It was durable, its physically permanent form and resistance to corrosion was an excellent attribute.
- It could be easily divisible into smaller parts, simply by re-minting; it could be repaired or reformed into whatever was needed.
- It was convenient to handle. Its value per size was readily accepted whereas most other commodities were significantly more bulky.
- After refining, quality was consistent no matter where mined, minted or exchanged. Grain could rot, cows could die, and paper currency could loose its value overnight.
- It had accepted value. Just about all civilizations instinctively recognise Gold as having value. It has value because as Carl Marx says, it requires human labour power to extract it, by prospecting, mining, & refining.
- It’s relative rarity.
- And lastly, no other single metal combines all these attributes.
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| Unlike any other element on earth, almost all the Gold ever mined is still around, much of it now in museums or numismatic displays, some on the pages of illustrated manuscripts, a large part in gleaming bars buried back in the earth below central banks, a lot of it is on fingers, ears and teeth, and there is a residue resting quietly in shipwrecks at the bottom of the sea, increasingly today it resides in the computer you sit in front of all day long. The current estimated total world production of Gold since mining began over 8,000 years ago is around 125,000 tons - over a trillion dollars worth. |
| Geologists provide the following analysis of the approximate percentage of elements in the Earths crust: |
| 27% |
Silicon |
| 8% |
Aluminium |
| 5% |
Iron |
| 2% |
Magnesium |
| 0.1% |
Copper |
| .0001% |
Tin |
| .000001% |
Silver |
| .0000001% |
Gold |
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| Britain adopted the Gold Standard in 1816 officially, guaranteeing to redeem its currency for Gold at the official price. By 1900 nearly 60 countries were on a Gold standard or very closely aligned with it. |
| The London Gold Market is one of the oldest and most powerful of the major Gold Exchanges. Public trading is conducted by 5 member firms that act as market makers, disposing of supply and creating demand. |
| Mocatta & Goldsmith founded 1684, Sharpe, Pixley & Co. founded 1780, N.M. Rothschild & Sons established 1804, Johnson & Matthey assayers as far as 1750, and Samuel Montagu & Co. est. as a partnership in 1853. |
| Representatives of these firms meet daily, at 10.30am and 3pm for the purpose of establishing a morning and afternoon price fix. When all bids balance they fix a price, which becomes an international benchmark. The standard unit of trade are 400oz Gold Bullion bars, all transactions are on a spot basis and full payment must be made within in 2 trading days. |
| It is important to recognise that in the period prior to WW1, when Britain was the creditor to the world, because of its dominance in international commerce, that Gold naturally flowed into London, and the Pound Sterling was a stable currency in terms of Gold. |
| Britain shocked holders of Sterling in 1930 when it was forced to devalue its currency by 30-40%; this was the end of the Gold standard and the great depression. The U.S. followed suit in 1933 by changing the Gold redemption price for U.S. Dollars from $20.63 to $35 per ounce. |
| With the rise of the U.S.A. to world dominance, after WW1, the fixed price for Gold remained constant at $35 US until August 1971 when Nixon announced that the US Treasury would no longer exchange dollars for Gold, the Gold window was shut down. Under pressure from his advisors, Nixon managed to put the national interest ahead of the well being of Bonanza fans. The president minced no words: |
| “I have directed the Secretary of the Treasury to defend the dollar against the speculators… Now the other nations are economically strong, and the time has come for them to bear their fair share of the burden of defending freedom around the world. The time has come for exchange rates to be set straight… There is no longer any need for the U.S. to compete with one hand tied behind its back… We are not about to ease up and loose the economic leadership of the world”. |
| With the Golden anchor torn loose, once and for all, the New Economic Policy created instant pandemonium around the world. In contrast to Wall St., which rose 4%, foreign stock markets plummeted. In Tokyo, the market suffered a genuine panic, with “sell at any price orders, sending prices down sharply.” One American who offered a US$1 bill to pay for a loaf of bread in Paris, was told, “That’s not worth anything any more”. |
| After the event, the dollar was naturally devalued, a new official price was set at $38, a series of crises followed which led to another round of negations and a fix of $42.22 US, which is still the official price used by the US Government. By late 1973 Central Banks around the globe, threw in the towel, and began to trade Gold at open market prices. The French even went as far as to value their official Government Gold reserves at market price, although others refused to follow their lead. |
| Beginning in 1975, tentative steps were taken to liberate the monetary system even further from gold. In 1975 and again in 1978 and 1979, the US Treasury auctioned a total of 6% of it’s Gold stock, motivated by the belief that “Neither Gold nor any other commodity provides a suitable base for monetary arrangements.” The IMF followed suit after making 2 momentous decisions, they agreed to abolish the official price for Gold, and to auction a portion of the fund’s holdings of Gold. |
| After 100 years in which hoarding Gold was the fashion among the Central Banks, all of a sudden, hoarding was out and dishoarding was in. |
| The public was unimpressed with both the words and deeds of the various governments, if they wanted to play games with artificial prices or auction off their Gold stocks, that was their problem. None of the international agreements to manage exchange-rate volatility seemed to hold-up. Inflation in all countries was eating away at the value of stock, bonds, property and cash. Consequently, many speculators were only too happy to buy Gold from Central Banks that insisted on behaving as though Gold was just another commodity, a barbarous relic, not worth owning any longer. |
| The soaring demand for Gold as a safe haven for wealth and as a hedge against inflation drove the price from $46US an oz. in 1972 to $500 in 1979. January 1980 turned out to be one of the wildest months in the history of any market, anywhere, any time. The price of Gold jumped by $110 an oz. in the first 2 trading days of the month, whilst the value of the US$ fell with respect to the German mark to a record low. A London bank reported that its entire inventory of Gold Sovereigns had sold out in the course of 2 days. A Swiss bullion dealer was quoted as saying “The market shows that people don’t trust the government, and they don’t trust paper money either.” |
| All of sudden the central banks began to make noises about restoring Gold to its traditional role. No wonder, due to the price increase, the US Gold reserves of 220 million ozs or 7,000 tons were now worth 3 times their total holding of foreign currencies. The Treasury Secretary held a news conference to announce “it doesn't seem an appropriate time to sell our Gold.” Within 30 minutes of Millers remarks, the Gold price shot up $30 an ounce to $715. The next day it was $760, the day after, Gold climbed to $820 US per oz., and on the 21 Jan 1980, Gold reached it record high of $850 US per Troy Ounce. |
| That bull market in Gold from $35 in 1968 to $850 in 1980 is an extraordinary episode in financial history. It represented a gain of 30% a year over 12 years, far in excess of the average inflation rate of 7.5% during the same period. Even the greatest bull markets in stock market history pale by comparison. In 1980 the $1.6 trillion value invested in Gold exceeded the market value of $1.4 trillion in U.S. stocks. If only Croesus, Charlemange and Pizzaro had lived to see such a triumph march in value of their precious Gold. |
| I'll leave this historical narrative now, with a quote from George Bernard Shaws' book The intelligent woman's guide to Capitalism and Socialism |
| Published in 1928: "You have to choose between trusting to the natural stability of Gold, and, the honesty and intelligence of the members of the government. And, with due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for Gold." |
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