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Tracing the history of gold - how did it emerge as a store of wealth?

By Finserv MARKETS - Aug 2,2019
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Tracing the history of gold - how did it emerge as a store of wealth?

In today’s day and age, gold is a valuable class of investment owing to the safety it offers investors as a tangible asset in times of economic or political instability. While equity and other securities markets may crash due to market forces relating to supply and demand, gold’s value remains constant due to its status as a precious metal. Gold has always held monetary value, right from the time it was used for barter or as currency by the monarchy in several countries.

Precious metals like gold and silver were used to create other coins, which could be used as regular currency in the economy. The idea of physical gold being turned into paper money began with goldsmiths, who stored gold for other members of society for a fee, issuing receipts on the basis of the gold they held. Since it was more convenient for people to carry paper receipts as opposed to the actual metal, the idea quickly caught on and the evolution of society gradually turned these goldsmiths into bankers.

The first central bank was set up in England in 1694, which not only lent money to monarchs but also provided protection to bankers who were issuing receipts against the stores of gold they held. As bankers issued more receipts, which was being used as currency, than could be redeemed by the gold they held, the Peel’s Bank Act issued in 1844 was enacted which forbade banks other than the central bank of issuing currency in lieu of gold.

Today, gold is traded across platforms as a precious metal that acts as a hedge against inflation. To invest in gold is considered a standard investment procedure for diversification of one’s portfolio and maintain a level of security along with trading in securities and equities that are more prone to crashes owing to their dependence on market forces. Investing in gold has gained such popularity that you can even do it online in the form of digital gold. Digital gold, available on Finserv MARKETS, allows people to buy and sell gold online and even store it in a digital account that keeps their purchased gold secure and saves them from the costs of storage.

Continue reading to understand how a metal mined from the earth’s crust achieved such prominence in the world of investment.

  • In 1066, the British currency system was firmly established, leading to the origin of the pound. It was technically a pound of silver, another metal that has been prominent as a form of currency throughout history and even today
  • In 1284, Britain and Venice both issued their first gold currencies. Venice issued the gold Dukat, which would continue to hold prominence as a form of currency for another 500 years.
  • 1792 saw the United States of America establish the silver-gold standard monetary system. The established value of a dollar was set at 24.75 grains of pure gold or 371.25 grains of pure silver.
  • By 1900, U.S.A. was officially put on a gold standard, wherein it agreed to maintain their currency at a fixed exchange rate in respect to currencies of other nations.
  • Until 1971, people were allowed to exchange dollars for gold in the U.S.A. However, in 1971, President Richard Nixon shut the “Gold Window” and ordered citizens to hand in their individual gold reserves in exchange for paper currency. This step was taken for a multitude of reasons, including to combat recession and to stop foreigners with dollars from draining the country’s gold reserves.
  • By 1978, a soft dollar had encouraged renewed interest in buying gold reserves as a store of value which could also be used as a hedge against inflation.
  • 2010 brought about the final act when President of the World Bank, Robert Zoellick, suggested that the world’s biggest economies should return to the gold standard in a bid to stabilize fluctuating currency values.

Despite the rise and fall of empires, gold retained its value throughout the ages. Precious metals act as tangible assets and provide a sense of security as reserves during times of economic and political instability. Owing to the value it holds, gold is a highly liquid asset which can be sold off at any time in exchange for cash. This is the reason people invest heavily in gold and hoard it because they know it can be liquefied to deal with any urgent requirements for cash at a moment’s notice.

Though the value of gold remains as integral to the functioning of economies as it was a thousand years ago, the manner of hoarding it has definitely undergone a transformation. No longer is gold buried in the way of secret treasure. Today, gold is traded across markets, in the form of jewellery, or even as digital gold. To invest in gold today, all you need is an account on Finserv MARKETS and you can easily buy and sell gold online. This Assay certified gold can be held online until you decide to redeem it as physical gold in which case it will be delivered to you in the form of gold coins or bars. By trading in this manner, not only do you invest in gold, but you also skip the storage costs and risks that come with holding gold in the physical form.

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