Gold, the world’s first ever currency, has seen its fair share of ups and downs. Throughout history, it has served as a reliable way to measure, exchange and demonstrate wealth, but why? Why is it that gold, above all other elements, was chosen to be used as currency? In this article, we’ll be exploring the answer to that question and looking a bit deeper into the uses for gold and whether gold still serves as a strong investment option in the modern investment portfolio.
Destined to be Desired
Without giving away any spoilers, it seems that due to a natural process of trial and error, and a process of elimination, that gold is the best option when it comes to currency. But surely there’s more to it than just a desire to be wealthy? Well, it seems that the desire for shiny things comes from a primitive instinct of trying to locate water. One of the scholars at the University of Houston, called Vanessa M. Patrick, and her collaborators from Ghent University in Belgium conducted research with various studies that all pointed towards our deep-rooted desire for water. The research even suggested that the thirstier participants got, the more they were drawn towards glossy images, which were used to represent shimmering water.
When Did We Discover and Start to Use Gold?
This is a tricky subject as there are no concrete timelines on when the first human interaction with gold occurred. That said, the first firm evidence we have of human interaction was around 3000BC in ancient Egypt (word ‘interaction’ used twice) Gold played a major role in ancient Egyptian mythology and was seen as a prized material by the pharaohs and temple priests. The Ancient Egyptians really laid down the foundations for our valuation of gold relative to silver, as the first recorded measurement took place here also, one piece of gold was equal to two and a half pieces of silver.
Despite this forward thinking by the Ancient Egyptians, the first use of gold as currency actually dates back to 700BC to the Kingdom of Lydia (now known as Turkey). The Lydians’ first produced coins were an alloy of gold and silver called Electrum, dating back to early 6th-Century BC. The largest denomination of these coins that have been found were called a 1/3 stater, weighing approximately 4.7 grams. The coins, even in such early stages of the currency, were pressed with designs and patterns; the 1/3 had a lion’s head with a sunburst. Further fractions were made all the way down to a 96th which weighed roughly 0.15 grams.
The Elemental Properties of Gold
Perhaps one of the main reasons for gold becoming the currency of choice throughout the world is its elemental properties. Gold, for all its lustre, desirability and beauty, is elementally boring; which is precisely why, after thousands of years, we continue to use it as an investment platform and also for manufacturing across a range of sectors. One of the elemental benefits of gold is that it does not corrode or rust, meaning that it retains its shiny appearance despite exposure to the elements. Typically, pure, 24-carat gold is very soft, which is in part why athletes are photographed in the ‘biting’ pose, as if to check that the medals are real gold. Some sources have said, that this technique derives from something people might have done during the famous gold rush, to test whether the metal they had mined was real gold or pyrite. If the medals were real 24-carat gold, they would almost certainly be left with teeth marks, but the medals are in fact only 1.34% gold, the rest is sterling silver.
Gold’s malleability means that it is perfect for manufacturing, as it requires low temperatures, relatively speaking, to smelt. This allows for intricate design for jewellery and for gold to be made into very small parts, used in computer components. Dentists have also been known to use gold as fillings, as it does not rust and is a non-toxic metal.
Gold’s Role in Modern Investment Portfolios
The story of gold’s price fluctuation over the past 100 years has been something of a roller-coaster and with the gold standard being abandoned by the US in 1971, this lead to extraordinary price increases. Gold reached it’s peak price in 2011 at a whopping £1,132/oz and since then, it has seen radical peaks, troughs and currently sits around £950/oz (as of November 2018).
Read more about how the value of Gold has changed over the last 45 years in this article.
Gold can be used as diversification in modern portfolios, as typically it displays negative correlations to equities, meaning that it tends to increase in value as they decrease, or vica versa.
It also can be used as a safe haven for investors to protect against possible catastrophes, which is why many investors turned to gold during the 2008 financial crisis in the US. Similarly, investors sought protection against a possible US economic collapse which generated extreme uncertainty, so people were looking to gold as an investment which resulted in its price doubling over the space of three years from $869.75 in 2008, to $1,895 in September 2011.
This precious metal can also be bought as a direct investment, to capitalise on price increases in the market. As the metal is a finite resource and with companies continuing to use it for manufacture, this could lead to further price increases in the future.
If you want to add to your portfolio or increase your gold holdings, then check out our selection of gold bars, or give us a call and chat to an expert.