Information to amaze and inform
HISTORY OF GOLD
It is not surprising that historical sources cannot
agree on the precise date that gold was first used. One states that
gold's recorded discovery occurred circa 6000 B.C. Another mentions
that the pharaohs and temple priests used the relic metal for adornment
in ancient Egypt circa 3000 B.C. However, it is curious to note that
the early Egyptian's medium of exchange was not gold but barley. The
first use of gold as money in 700 B.C. is claimed by the citizens
of the Kingdom of Lydia (western Turkey). Surely, you remember the
kingdom of the famous fortune seeking King Croesus - circa 550 B.C.
In 1792 the U.S. Congress adopted a bimetallic standard (gold and
silver) for the new nation's currency - with gold valued at $19.30
per troy ounce. This remained essentially unchanged until 1834, when
the price of gold was raised to the $20.67 level which held for the
next 100 years. It was not until 1934 that President Franklin Delano
Roosevelt devalued the dollar by raising the price of gold to $35
per ounce.
Relative to today's world economic conditions, it is important to
remember that F.D.R.'s stated purpose for dramatically increasing
the value of gold was to boost commodity prices (especially farm products)
and create more employment for the millions who were suffering the
devastating effects of the Great Depression.
In December 1971 representatives of the ten most industrialized nations
met in Washington D.C. It was their express purpose to take whatever
measures in order to improve international economic conditions. The
now famous Smithsonian Agreement accorded an immediate hike in the
value of gold from $35 to $38 per ounce. President Richard Nixon hailed
it as "the most significant monetary agreement in the history
of the world." Unfortunately, it resulted in a measure too little
and too late. International economic conditions continued to deteriorate,
forcing the U.S. Government in 1973 to devalue the dollar a second
time by raising the official price of gold to $42.22 per ounce. Finally,
all international currencies were allowed to "float" freely
against gold. By June of that year the London Gold Fixing had risen
to an unprecedented $120 per ounce. Exploding demand during the following
months set the stage for the creation of gold futures trading on the
COMEX in January 1975.
A worldwide feeding frenzy for gold cannonballed its price to an all-time
high of $850 per ounce on January 21, 1980. Obviously, speculative
excess had carried too far. Since that date the price of gold has
been in a downtrend for more than 13 years. Naturally, there have
been periods of respite, when prices rebounded slightly. However,
on balance the long-term bear market remained intact until April 23,
1993. On that date the June 1993 COMEX Gold futures contract closed
at $347.50 - which, in our opinion, heralded a reversal of the 13
year downtrend, and thus the return of Virgil's echo: "Auri Sacra
Fames"
L U R E, L O R E O F G O L D
GOLD is the oldest precious metal known to man. Therefore, it is a
timely subject for several reasons. It is the opinion of the more
objective market experts that the traditional investment vehicles
of stocks and bonds are in the areas of their all-time highs and may
be due for a severe correction. In fact the traditional indicators
of valuation are far past the excessive readings of 1987 and worst
than even 1929! In warning recognition of current market mania, Fed
Chairman Alan Greenspan poignantly admonished that current market
excesses display "IRRATIONAL EXUBERANCE WHICH MAY LEAD TO A FINANCIAL
ASSET BUBBLE!"
Therefore, astute and prudent investors are seeking alternative investments.
Their strategy is to seek risk diversification away from stocks and
bonds, currently near all-time highs - in order to take positions
in hard assets, which are presently near multi-year lows, and hold
promise for reasonable good returns in the future.
WHY IS GOLD CONSIDERED SO PRECIOUS?
To fully appreciate why 8,000 years of experience say gold is forever,
we should review why the world reveres what England's most famous
economist, John Maynard Keynes, cynically called the "barbarous
relic."
Why gold is "good as gold" is an intriguing question. Dr.
Sigmund Freud, the founder of psychoanalysis, suggested that "our
fascination with gold is related to the erotic fantasies of early
childhood." However, we think that the more pragmatic ancient
Egyptians were perhaps more accurate in observing that gold's value
was a function of its pleasing physical characteristics and its scarcity.
PHYSICAL CHARACTERISTICS
There are many physical aspects of the yellow metal which are truly
amazing. Gold is the most malleable (able to be hammered into very
thin sheets) and ductile (able to be drawn into a fine wire) of all
metals. It is so malleable that a goldsmith can hammer one ounce of
gold into a thin translucent wafer covering more than 100 square feet
only five millionths of an inch thick. It would be so thin that 1,000
sheets would be needed to make up the thickness of one newspaper page.
Its ductility is equally amazing. One ounce of gold can be drawn into
a wire 50 miles long! Furthermore, ONLY one ounce of this marvellous
metal is required to plate a thread of copper 1,000 miles long. That's
really stretching it, wouldn't you say? One cubic foot of gold weighs
more than half a ton.
Since time immemorial the noble metal's resplendent luster allows
it to be designed into the world's most coveted and exquisite jewellery
-- fit for queens or kings. Gold is also one of the heaviest metals
known. It has a specific gravity of 19.3, which means it weighs 19.3
times as much as an equal volume of water. Therefore, one cubic foot
of gold weighs 1,206 pounds. More than half a ton! This probably explains
why there have NEVER been any large armed robberies of gold bullion
throughout history. Who the hell could carry it?!
SCARCITY
More unbelievable than its physical characteristics is its scarcity.
It is well documented that the world's holdings accumulated during
all recorded history to the present is only about 120,000 metric tons.
Understandably, it is rather difficult for the average person to relate
to this measurement. Suffice it to say that the total world's hoard
of the shiny metal will occupy a single cube 60 feet by 60 feet by
60 feet - which is equivalent to the approximate volume of three 12-room
homes. This is indeed a small volume of matter to have influenced
the toil and destiny of so many people since biblical days. In fact
the total world's holdings of the rare metal could be transported
by a single solitary oil tanker - that's if Lloyds of London would
ever accept the insurance risk on this priceless cargo. The value
of this priceless cargo would be approximately $1.4 TRILLION!
Another way to appreciate its scarcity is to compare it to the annual
steel production in the United States. According to the Iron and Steel
Institute in Washington D.C., the American industry poured an average
of 10,500 tons of steel per hour during all of 1995! Please appreciate
that's 24 hours per day and 365 days per year - indeed, a lot of steel.
In sharp contrast the world's annual gold mine production increases
the total holdings by only 2.0% per year. That's an average increase
in the world's gold supply of a mere 2,000 tons per year - versus
10,500 tons of American steel per hour. Gold is indeed very, very
rare.
Gemstone & Jewellery Glossary
Disclaimer
Opinions and interpretation of law expressed here are my own. If you
stand to lose as a result of any decision based on information here
you should seek appropriate legal advice. I give this information
freely, and cannot accept any responsibilities for losses you may
incur. Nor can I accept responsibility in the unlikely event of inaccurate
or misleading information. You alone are responsible for your actions.
Also while much of the information is relevant throughout the EU,
I have written with particular regard for accepted practices in the
UK.
