One of the oldest civilisations known to man, the Sumerians of Mesopotamia, who lived in what is modern-day Iran and Iraq, first used gold as sacred, ornamental, and decorative instruments in the fifth millennium B.C.

Around the same period, the early Egyptians —the richest gold-producing civilisation of the ancient world — began the art of gold refining. Like the Sumerians, the Egyptians used gold primarily for personal adornment, rather than for monetary purposes, although the kings of the fourth to sixth dynasties (c. 2700 - 2270 B.C.) did issue some gold coins. The first large-scale, private issuance of pure gold coins was under King Croesus (560-546 B.C.), the ruler of ancient Lydia, modern-day western Turkey. Stamped with his royal emblem of the facing heads of a lion and a bull, these first known coins eventually became the standard of exchange for worldwide trade and commerce.

Source: The World Gold Council

Gold is traditionally weighed in Troy Ounces (31.1035 grammes). It has a specific gravity of 19.3,  meaning that it is 19.3 times heavier than water. So gold weighs 19.3 kilograms per litre. With the density of gold at 19.32 g/cm3, a troy ounce of gold would have a volume of 1.64 cm3. A tonne of gold would therefore have a volume of 51, 760 cm3, which would be equivalent to a cube of side 37.27cm (Approx. 1' 3''). At the end of 2003, Gold Field Mineral Services (GFMS) estimated that above-ground stocks represented a total volume of approximately 150,500 tonnes, of which 61% had been mined since 1950. All the gold ever mined would form a cube measuring only 19m on each side. This cube would, for example, easily fit under the Eiffel Tower in Paris.

The proportion of gold in jewellery is measured on the carat (or karat) scale. The word carat comes from the carob seed, which was originally used to balance scales in Oriental bazaars. Pure gold is designated 24 carat, which compares with the "fineness" by which bar gold is defined.

Pure gold Gold alloys Caratage Fineness % Gold
24 1000 100
22 916.7 91.67
18 750 75
14 583.3 58.3
10 416.7 41.67
9 375 37.5

The most widely used alloys for jewellery in Europe are 18 and 14 carat, although 9 carat is popular in the UK. Portugal has a unique designation of 19.2 carats. In the United States 14 carat predominates, with some 10 carat. In the Middle East, India and South East Asia, jewellery is traditionally 22 carat (sometimes even 23 carat). In China, Hong Kong and some other parts of Asia, "chuk kam" or pure gold jewellery of 990 fineness (almost 24 carat) is popular.

International Vault, Federal Reserve Bank New YorkThe gold stored at the Federal Reserve Bank of New York is secured in a most unusual vault. It rests on the bedrock of Manhattan Island — one of the few foundations considered adequate to support the weight of the vault, its door, and the gold inside — 80 feet below street level and 50 feet below sea level. 


In the middle of 1997, the Fed’s vault contained roughly 269 million troy ounces of gold (1 troy oz. is 1.1 times as heavy as the avoirdupois ounce, with which we are more familiar), representing 25 to 30 percent of the world’s official monetary gold reserves. At the time, the vault gold’s value was $11 billion at the official U.S. Government price of $42.2222 per troy ounce, or about $86 billion at the market price of $319 an ounce. One of the vault’s gold bars (approximately 27.4 pounds) is valued at a $319 market price, about $127,000.

The UK adopted a gold standard after the Napoleonic wars in the early part of the 19th century. In the second half of that century, a number of nations in Europe and elsewhere followed suit, though some for a time based their currencies on a bimetallic gold/silver standard. The United States adopted the gold standard de facto in 1879, by making the "greenbacks" that the Government had issued during the Civil War period convertible into gold; it then formally adopted the gold standard by legislation in 1900. By 1914, the gold standard had been accepted by a large number of countries, although it was certainly not universal.

The "gold specie" standard called for fixed exchange rates, with parities set for participating currencies in terms of gold, and provided that any paper currency could on demand be exchanged for gold specie at the central bank of issue. The system was designed to bring automatic adjustment in case of external deficits or surpluses in transactions between countries, that is, balance of payments imbalances. The underlying concept was that any deficit country would have to surrender gold to cover its deficit, with the result that the volume of its money would be reduced, leading to lower prices, while the influx of that gold into the surplus country would expand the volume of that country’s money and lead to higher prices.

In the foreign exchange market, under the gold standard, exchange rates could, in principle, fluctuate only within very narrow limits determined by the costs of shipping and insuring gold. Thus, if U.S. residents accumulated pounds sterling as a result of exporting more goods and services to Britain than they imported and being paid in pounds for the excess, the U.S. holders of sterling had the option of converting pounds into gold at par value at the Bank of England and shipping the gold back to New York. During the 1880-1914 period, the "mint parity" between the U.S. dollar and sterling was approximately $4.87, based on a U.S. official gold price of $20.67 per ounce and a U.K. official gold price of £ 4.24 per ounce. The sterling/dollar exchange rate would not fluctuate beyond the "gold points"—about three cents above and below the mint parity—which represented the cost of shipping and insuring gold, since at any exchange rate outside the gold points it would be possible to gain an arbitrage profit by converting currency into gold and shipping the gold to the other centre. While some gold transfers actually took place under this system, such shipments frequently were avoided  by monetary policy moves. In the example above, the U.K. might raise interest rates to attract capital inflows—i.e., increase the demand for sterling—and counterbalance the financial impact of the import excess. Higher interest rates also would have a deflationary effect in the deficit country.

This automatic operation of the balance of payments adjustment process under the gold standard required, in theory, that in their financial policies, participating countries give an absolute priority to external adjustment over domestic objectives. This meant that in any periods of conflict between domestic and external objectives, policy tools might not be available to be used for domestic problems of recession, unemployment, or inflation. But the philosophy widely held in those pre-Keynesian times was that economies would tend naturally toward reasonably high levels of employment and reasonable price stability without such government policy actions.

For a forty-year period there were no changes in the exchange rates of the United States, UK, Germany, and France (though the same did not hold for a number of other countries). There were few barriers to gold shipments and few capital controls in the major countries. Capital flows generally seem to have played a stabilising, rather than destabilising, role. After the outbreak of the First World War, one combatant country after another suspended gold convertibility, and floating exchange rates prevailed. The United States, which entered the war late, maintained gold convertibility, but the dollar effectively floated against the other currencies, which were no longer convertible into dollars.  After the war, and in the early and mid-twenties, many exchange rates fluctuated sharply. Most currencies experienced substantial devaluations against the dollar; the U.S. currency had greatly improved its competitive strength over European currencies during the war, in line with the strengthening of the relative position of the U.S. economy.

In Europe, especially in the UK, there was a widespread desire to return to the stability of the gold standard, and a worry about the growing attractiveness of the dollar—which was convertible into gold—and of dollar-denominated assets. Following a disastrous five years back on the gold standard, the UK abandoned it in 1931, and others followed over the next few years. In 1933, US President Franklin Roosevelt imposed a ban on U.S. citizens’ buying, selling, or owning gold. While the U.S. Government continued to sell gold to foreign central banks and government institutions, the ban prevented hoarders from profiting after Congress devalued the dollar (in terms of gold) in January 1934. This action raised the official price of gold by more than 65 percent (from $20.67 to $35 per troy ounce). Gold coins and certificates considered collectors’ items were exempt from the prohibition, and artistic and industrial users of gold were permitted to deal in the metal under a special Treasury license. Gold at $35 set off a mining boom. US output rose from 2.6 m.oz in 1933 to 4.4 m.oz in 1936, and peaked at 6.0 m.oz in 1940 (not equalled until 1988). Canada hit 5.5 m.oz in 1941 (best until 1991). World output up from 20 m.oz to 38.6 m.oz by 1940.

In 1971 President Richard Nixon ended US dollar convertibility to gold and the central role of gold in world currency systems ended. The dollar and gold floated and in January 1980 the gold price hit a record of $850 per ounce against a background of an international crisis arising from the Soviet invasion of Afghanistan and the Islamic Revolution in Iran.

In January 2008, 28 years after the all-time record high of price of $850 in January 1980, the nominal broke the record. In inflation adjusted US dollars, the price would have to reach about $2,300 to break the record in real terms.

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