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A Brief History of Gold

Professor of Financial Economics and Part-time Value Investor, Transfin.
Apr 8, 2020 3:27 AM 2 min read
Editorial

These are uncertain times. Even before the coronavirus pandemic hit every nation's economy, markets were fearing recession, protectionism was on the rise and trade wars were raging.

 

In uncertain times, stocks tend to experience high volatility. One investment, however, that has histrocially increased in value in times of unpredictability is gold. Let's look at the brief history of Gold

 

Sold for Gold

The yellow metal has fascinated humans since the dawn of civilisation. It is found everywhere – around our fingers, around our necks, in our teeth, in tech devices, in cars, in art installations, as sovereign bonds etc. But for all its omnipresence, gold is a relatively rare metal. In fact, at current rates of gold mining, gold deposits yet to be unearthed are expected to run out as early as within the next two decades.

 

The Origin of Gold

Gold is not native to Earth. It entered our planet a few billion years ago when two neutron stars collided. It was pushed towards the surface by Earth's molten, hot core. And from here it was mined and extracted by human beings.

 

Every civilisation that came upon gold was star-struck by its beauty, colour and shine. Gold mining took off naturally, and gold became a symbol of power, wealth and beauty.

 

In the modern era, globalisation contributed to an explosion in gold mining. In fact, 75% of the presently accounted for gold has been extracted only since 1910. Gold’s popularity and the reverence it commanded led to it being a crucial component of monetary policy until as late as 1971, before which the gold standard guided the value of currencies around the world.

 

No Country for Gold Men

Post-1971, free-flowing fiat currencies took over, but gold remains as crucial to the global economy as ever. Today, 50% of all gold consumption is in the jewellery business while individuals and private institutions hold 20%. Another 17% is held by Central Banks as gold reserves while the remaining is used in other areas like technology, dentistry etc.

 

I Gold You So

Why is gold valuable, though? This can be, broadly speaking, because of two reasons. One, its popularity across professions and across cultures. And two, its rarity. Gold reserves are falling down. And what happens when a commodity’s demand is high while its supply is dwindling? Its value shoots up.

FIN.

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