First and foremost gold is jewellery. But what is jewellery? An item of jewellery is an easily portable consumer product and, depending on appearance and weight, denotes social status. Its chief attributes are that it is rare, it has a beautiful colour and sheen, it doesn’t corrode and it is malleable; gold is able to be easily purified, impressed, cast, melted, and otherwise able to be fashioned into objects ranging from the prosaic to those of exquisite craftsmanship.
For thousands of years, in scores of civilizations and hundreds of cultures, and long before gold became chopped into coins, the possession of gold objects denoted status. Only status. It didn’t denote wealth as we know the term today. Otherwise, gold treasures would never have been buried with its former owners, alongside, often, his or her sword, chariot, horses, copper axe-heads, wine jars and even freshly-killed slaves in more than a few cases.
The existence of untouched graves, re-discovered every now and again in modern times, means that the buried gold only had significance when in close proximity of its possessor, alive or dead, as a personal status good. Such graves — often quite shallow — were never plundered for their “wealth” by the cultures that dug them. Gold possessions were sacrosanct for generations thereafter until folk memory retained only the name and reputation of the dead person or when an invading culture killed the locals or swept them into slavery and looked with disinterest on mini-hillocks that were left undisturbed because of the apparent innocence.
It was only when gold, as small bars, became useful for trade, as in ancient Egypt, that graves started to become plundered — that is, those graves that were obviously so, such as pyramids or elaborate graveyards of the wealthy. It was only then, as a convenient barter commodity, that gold start to gained a dual value. After the Egyptian and many other civilizations, it took the genius of the ancient Greeks, almost two millennia later, to standardize trade bars into coins of equal weight with the heads of gods impressed upon them. This meant that a Greek merchant could pay, or be paid with, gold coins to match up any imbalances between bartered goods in whatever Mediterranean port he happened to be. In their time, Greek merchants were the wealthiest people on earth and cut down thousands of square miles of forest all over the Middle East and northern Africa in order to build their merchant ships and triremes.
Today, a considerable part of newly-mined gold (about 2,500 metric tons per annum) is made into status jewellery for Western and Asian countries and those Second World countries, such as Brazil and Indonesia, with large populations and briskly-growing GDPs. However, after several generations, jewellery becomes concentrated in fewer high status hands by means of the dowrie effect and primogeniture and then it’s sold to goldsmiths. (By then, of course, the ultimate possessors have far too much of it to wear comfortably!) In the West, most jewellery (gold Rolexes excepted) is scrapped out by its original owners or within a generation or two for fashion reasons, rather than becoming concentrated. Most business which tout for gold scrappage offer only about two thirds of the real price of gold at the most, but a reputable jeweller or goldsmith will offer the full current price on that day (depending on purity) minus a few per cent.
So what’s the overall situation today? It is the dual role of gold which is now more important than its physical possession in this or that place. Strangely enough, the role itself is now re-cycling to a balance similar to that which existed before the First World War. In those years there were few gold coins because banknotes and, more importantly, bank cheques were more convenient in money circulation. Most of the world’s mined gold (particularly that from the California, Victoria and Witwatersrand gold rushes of the mid-19th century) ended up as jewellery (where it was seen every day!) or, in about an equal amount, lying as bullion, in five central banks — those of England, America, Germany, France and Russia (where it was never seen for 364 days of the year except by relative handfuls of officials!).
The latter situation gives rise to asinine jibes today such as: “Gold is useless as a currency. It is dug out of the ground and then buried underground in bank vaults.” Well, this wasn’t so pre-1914. On the 365th day of the year (more exactly, for a few days every several years), gold poured out of the above banks in order to calm down panicking businesses and the rich, who, fearing disaster, went to the banks demanding their deposits. Gold was not an undisturbed reserve; it actually moved with almost the speed of cannonballs when necessary. Also, very large quantities of central bank gold were shifted internationally when big trade (such as cotton) suddenly changed from one country to another or a country at war needed to borrow from the Big Five to pay for armaments.
Since 1918, the sole prosperous victor of WWI, America, decided that the dollar should be the main world trading currency and that the US greenback, and only it, should be the only currency able to buy gold. This lasted up to, and even beyond WWII. The European and all other countries had to meekly do as they were told. In time, however, as countries such as England, Italy, Germany and France were recovering and found themselves with surplus dollars gained from exports and dollars spent abroad by Americans and businesses, plucked up their courage and began trading their surplus dollars for American gold. America didn’t like that at all. By 1970, the original tranche of US gold had declined from about 25,000 tonnes in the 1950s to 8,000. Before the European countries could each catch up and then overtake America’s stock of gold (Germany alone had more than 3,000 tonnes), President Nixon stopped the exchange in 1971 by completely severing the exchange link between the American dollar and American gold.
A lot could be said about American propaganda and manipulation against the gold price since then. Suffice it to say that, today, an additional 30 or 40 central banks are now buying gold because they don’t trust the continuously depreciating US dollar. The European Central Bank was set up twelve years ago with gold as part of its reserves. It is said that the International Monetary Fund are thinking of buying more gold as a reserve. The Bank for International Settlements (the central banks’ central bank) is considering restoring gold as a currency reserve. The retiring President of the World Bank, Robert Zoellick has said that a gold reference is necessary to stop governments printing banknotes willy nilly and leading the world into financial chaos.
Medieval gold coinage was so effective that it eased it way as the backcbone of the financial system of the industrial revolution. Without gold, and the banks that arose in order to move it around from one project to another, industrialization would never have taken place. By 1914, the gold standard was well nigh perfected and was making its way rapidly into all the trading countries of the world as the basis for their nationalistic currencies. Every possible event concerning gold today suggests that, whatever governments may say, gold is now easing its way back as the only dependable backdrop in a globalized world that desperately needs financial stability.