The value of gold: a history of wealth
Throughout the history of humanity, empires have collapsed, many economic systems have failed and dozens of currency collapses have occurred. Even so, gold has always been a safe haven to protect assets and fortunes. At 11Onze we take a look at the history of the value of gold.
This history of wealth and gold begins around 3,000 BC. The ancient Egyptians were the first to create jewellery from this precious metal. However, it was not until the 6th century BC that gold began to be used as a currency. It was thanks to merchants, who were looking for a model that would allow them to standardise their transactions.
This model using gold became hegemonic in the known world, whether in Europe, Africa, Asia or America. Gold became a true symbol of wealth and heritage. And, little by little, ways were sought to refine this system. The first time the value of a currency that is still in circulation was standardised to represent the government of a country was in Great Britain around 1066. This gave the pound sterling its name.
And it was precisely on the pound sterling that the gold standard was first established. But it was not until several centuries later, according to historians. Thus, in 1717, the first gold standard was established, thanks to Isaac Newton. The scientist, in an essay on the monetary system, establishes a ratio of gold to silver that defines a relationship between gold coins and the silver penny that was to be the standard unit of account in the Law of Queen Anne of Great Britain.
However, a true gold standard requires that there be a source of legal tender banknotes and coins, and that this source be supported by convertibility to gold. And this did not happen in England until David Hume developed the gold standard system in 1752. From then on, this gold standard spread to the rest of the world and became the characteristic monetary system of the 19th century.
Thus, the gold standard established that a country’s currency was fully convertible into grams of gold, i.e. it standardised the proportion of gold in each of the coins minted in circulation. In fact, central banks were obliged to exchange foreign currency into gold if a citizen asked them to do so. And, in addition, there was free movement of capital, i.e. individuals could export and import capital in gold, often represented in paper money rather than cash.
Although the dollar was already a Spanish currency in circulation in the Americas, it was not until 20 years after its founding in 1792 that the United States also adopted the gold standard to mint the US dollar and, in doing so, gained prominence in the monetary world. Even so, after World War I and the crash of 1929 and the Great Depression, many countries decided to abandon the gold standard in order to devalue their currencies and recover an economy that was going from bad to worse.
The end of the gold standard
The 1944 Bretton Woods conference led the way: it was agreed that all currencies would be pegged to the dollar, with the condition that the dollar be kept at a fixed exchange rate with the price of gold. However, the model lasted a scant 30 years, until 1971, when President Richard Nixon ended the gold standard in order to reflate the American economy during the Vietnam War, just as other governments had done before him in the wake of the crash of 1929.
Since then, the dollar and the rest of the world’s currencies, including cryptocurrencies such as bitcoin, are what is known as fiat money, i.e. they depend entirely on the trust we place in them, as Jordi Sánchez, 11Onze’s product owner, explained in La Plaça. Therefore, they are not backed by precious metals and this makes them more unstable.
In fact, the end of the gold standard is, for many experts, the beginning of the perversion of the entire monetary system, which prints banknotes when it suits it. For this, at present, the value of the dollar is oversized and causes turbulence in the economy that could trigger a global debt crisis. This is why gold is once again the safe haven that provides protection for investors.
Protecting yourself and avoiding gold bubbles
Gold has never ceased to be important in the global economy. For example, the balance sheets of central banks such as the European Central Bank (ECB), the US Federal Reserve and the Bank of England, and international organisations such as the International Monetary Fund (IMF), have to hold about one fifth of the world’s reserves of the precious metal. This prevents gold bubbles and controls the price of gold.
Moreover, in convulsive contexts such as the one we are experiencing, governments protect their country’s reserves by buying gold, as China and India are currently doing, as the former secretary general of Cecot, David Garrofé, explained in one of the latest episodes of the Ens Interessa podcast. Precisely so that citizens also have the opportunity to protect their assets from rampant inflation, 11Onze has launched Preciosos 11Onze.
The material that blooms from the earth
It should be borne in mind that gold is a limited precious material, which is why it is difficult for it to lose its value, and it is found in nature in its pure state, in elongated pieces or small particles. At the end of 2006, it was estimated that 158,000 tonnes of gold had been mined throughout history, representing only a 20-metre cube per side.
Gold as an element, in addition to its unique metallic yellow colour, stands out from other metals because it is the most malleable and ductile known. Scientists value its density and high melting point. It also has a high electronic affinity, which makes it a good conductor of heat and electricity. It is also unaffected by air and most chemicals. In economics, gold is also that reliable.
If you want to discover the best option to protect your savings, enter Preciosos 11Onze. We will help you buy at the best price the safe-haven asset par excellence: physical gold.
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