A History Of
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
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 cannon-balled 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
Lure, Lore Of Gold:
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 Preciouse?
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.
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?!
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.
More facts about Gold...