Since the first discovery of the shiny yellow metal, gold has been highly valued for its lustre and scarcity, making it a popular choice to showcase wealth and power. After civilizations developed, gold was used as a form of exchange for large transactions and became the standard form of currency after the gold rush in 1850. In modern times, the gold standard has since been abolished, but gold is still valued as a store of value and a hedge against inflation, helping investors diversify their portfolios. Let’s explore gold’s different roles and importance in history. 

Gold’s First Use Case

The earliest well-dated usage of gold was purely decorative. 6000 years ago in 4000 BC, cultures in Eastern Europe used gold as decorative pieces and jewellery. The oldest artifacts found on the shore of Bulgaria took the shape of beads, rings, and bracelets. Historians speculate that since gold was soft and malleable, it could be easily formed into round shapes even without specialized tools. Paired with its attractive colour, it was the perfect material for small jewellery and special decorative pieces. Gold was too rare to use as a material for everyday items such as utensils. 

First Gold Coin 

Ever since the first discovery of gold, it has always been seen as a valuable resource because of its scarcity, thus it would not be long until people began using it as an exchange of value. The first coins containing gold were discovered in Lydia (located in Asia) and dated back to 600 BC. Gold then spread to other civilizations like Persia, Greece, and Rome, forming their own form of currency with precious metals. Although gold coins existed and circulated, it wasn’t the standard currency used by common folk. For a long time, it was silver, not gold, that was used as a method of exchange because the amount of gold was too scarce to use as currency for small exchanges. Silver coins were used by everyday citizens of these civilizations and gold was preferred for larger trades by the wealthy. 

Establishing The Gold Standard 

The Gold standard originated in Britain, which introduced it to their colonies. Silver was slowly phased out as the standard form of exchange after the gold rush in the 1850s increased the world’s gold supplies. The minting of newly acquired gold pushed the gold-silver price ratio down to an affordable level, leading to Britain adopting the gold coin as their standard form of currency rather than silver. France and The United States, who used the bimetallic standard at this point, finally relinquished it after the gold and silver price ratio dipped below 15.5. By the time the gold-silver went back up, the silver standard was already phased out, but gold circulation was not financially viable anymore. To solve the issue of gold and silver coin scarcity, central banks took over and replaced the coins with bank notes and token coins in exchange for gold and silver coins. Individuals holding paper money could go to a bank and exchange that money for a fixed amount of gold. Central banks essentially substituted gold with fiat currency so that gold reserves could be standardized, taking the first step towards the banking system we have now.

Abandoning the Gold Standard 

The gold standard reigned strong for half a century but was abandoned during WWI. To finance the war, many countries suspended the gold standard so they could print more fiat currency to finance the war. Ultimately the excess printed money led to hyperinflation in many countries and prices more than doubled in the Western World. Inflation did not reach equilibrium by the time of the great depression, which effectively killed off the gold standard indefinitely. During the great depression era, people kept withdrawing cash and gold and holding it for fear of poverty. This led to 1 out of 5 banks failing, and the bank rushes and gold hoarding left the banks empty, with no gold to back the fiat currency. 

The economy bounced back when WWII started, which created jobs in the military and defence. After the war, the leading Western Powers abandoned the gold standard and developed the Bretton Woods agreement to set the frameworks for the current monetary system. The U.S. dollar became the de facto currency for the rest of the world. Countries began comparing their currencies to the US dollar instead of gold and instead of currencies being backed by gold, the American Dollar is backed by the government and its ability to continually generate revenue. Interestingly enough, the U.S. also held the world’s largest share of gold after WWII and owned around 75% of the world’s gold supply. 

Modern Gold Usage

In the 21st century, the gold standard has completely disappeared and no country’s fiat currency is backed by gold. The probability of returning to the gold standard is low since it would make the economy vulnerable to the supply and demand for gold. Nowadays, gold and the U.S. dollar have an interesting relation where if the dollar value declines in the long term, the price of gold increases. 

Gold was an important part of human history - being used first as decoration then as an exchange of value and the basis of our current monetary system. Modern technology uses gold in its circuitry and investors love gold as a hedge against inflation and a store of value in uncertain economic conditions! From the past to the future, if there is one lesson to be learned is that gold will always have usage and remain in demand, making this shiny yellow metal a reliable store of value.