Gold as currency

A brief look at the history of gold tells us why it is the ultimate currency, always has been and will most likely continue to be. Gold was the first metal known to mankind and has since infused itself into every human culture. It’s radiance, beauty, malleability and resistance to tarnish has made gold the ultimate precious metal. Early civilizations equated gold with gods and rulers, wealth and power. Already then people were intuitively placing a high value on gold, recognising it as something beautiful which belonged to the elite. Our desire to own gold dates back to the earliest prospectors (even before 700BC, when gold coins first made an appearance) and gave rise to the words ‘gold rush’. History shows that we sort after and admired gold even when it had no monetary value. It has always been a desirable commodity all on its own.

A brief look at the history of gold tells us why it is the ultimate currency, always has been and will most likely continue to be. Gold was the first metal known to mankind and has since infused itself into every human culture. It’s radiance, beauty, malleability and resistance to tarnish has made gold the ultimate precious metal. Early civilizations equated gold with gods and rulers, wealth and power. Already then people were intuitively placing a high value on gold, recognising it as something beautiful which belonged to the elite. Our desire to own gold dates back to the earliest prospectors (even before 700BC, when gold coins first made an appearance) and gave rise to the words ‘gold rush’. History shows that we sort after and admired gold even when it had no monetary value. It has always been a desirable commodity all on its own.How did gold become currency? Its beauty, desirability, scarcity, unique density and ability to be melted, formed and measured made it an ideal commodity to trade with. Gold defined money – something you could carry on yourself, hide easily and it lasted forever.

How did gold become currency? Its beauty, desirability, scarcity, unique density and ability to be melted, formed and measured made it an ideal commodity to trade with. Gold defined money – something you could carry on yourself, hide easily and it lasted forever.

Eventually, gold and silver coins replaced barter arrangements making trade much easier. The concept of money gave rise to a monetary standard which in turn brought the world economy into play and allowed it to expand and prosper.

Eventually, paper money became the most obvious way to trade in the world but without gold, it has absolutely no real value. Paper money is commodity based, which means that it only ever represents the value that exists in gold. So gold dictates the money market and while we don’t actually use it to buy our groceries anymore we still turn to gold for financial security.

Globally, we value the metal on the gold standard system, which uses a country’s gold value to directly assess the relative net-worth of its paper-based currency. So, any country which has a paper-based currency can exchange it for an agreed amount of real gold. The benefit is that it creates a fixed asset, which in turn self-regulates. In other words, a government can only print out as much paper-based money as it has in gold.

Using this system discourages inflation and government-created budget deficits because the country can’t exceed its supply of gold. But, what may seem ideal to some isn’t necessarily ideal for others and a lot of countries have moved away from the gold standard system and use solely paper-based financing.

However, with the current global recession and subsequent credit crunch, some governments and outside investors have started to move back towards gold. The bottom line is gold can be bought and stored. So, while it isn’t really used as a direct form of payment, it is extremely liquid and can be easily converted to cash in almost any currency. And, the fact still remains, when the value of paper currency decreases, the value of gold increases because people still feel most secure investing in the precious metal.

So, once again the world is realising that gold is a highly valuable commodity. Who can argue the eternal value of gold?