History of Gold

Gold Through The Ages

The history of gold begins in remote antiquity. But without hard archaeological evidence to pinpoint the time and place of man's first happy encounter with the yellow metal, we can only conjecture about those persons, who at various places and at different times first came upon native gold. Experts of fossil study have observed that bits of natural gold were found in Spanish caves used by the Paleolithic Man about 40,000 B.C. Consequently, it is not surprising that historical sources cannot agree on the precise date that gold was first used. One states that gold's recorded discovery occurred circa 6000 B.C. Another mentions that the pharaohs and temple priests used the relic metal for adornment in ancient Egypt circa 3000 B.C. However, it is curious to note that the early Egyptian's medium of exchange was not gold but barley. The first use of gold as money in 700 B.C. is claimed by the citizens of the Kingdom of Lydia (western Turkey). Surely, you remember the kingdom of the famous fortune seeking King Croesus - circa 550 B.C.

More Recent History of Gold

In 1792 the U.S. Congress adopted a bimetallic standard (gold and silver) for the new nation's currency - with gold valued at $19.30 per troy ounce. This remained essentially unchanged until 1834, when the price of gold was raised to the $20.67 level which held for the next 100 years. It was not until 1934 that President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce.

Relative to today's world economic conditions, it is imperative to remember that F.D.R.'s stated purpose for dramatically increasing the value of gold was to boost commodity prices (especially farm products) and create more employment for the millions who were suffering the devastating effects of the Great Depression.

In December 1971 representatives of the ten most industrialized nations met in Washington D.C. It was their express purpose to take whatever measures in order to improve international economic conditions. The now famous Smithsonian Agreement accorded an immediate hike in the value of gold from $35 to $38 per ounce. President Richard Nixon hailed it as "the most significant monetary agreement in the history of the world." Unfortunately, it resulted in a measure too little and too late. International economic conditions continued to deteriorate, forcing the U.S. Government in 1973 to devalue the dollar a second time by raising the official price of gold to $42.22 per ounce. Finally, all international currencies were allowed to "float" freely against gold. By June of that year the London Gold Fixing had risen to an unprecedented $120 per ounce. Exploding demand during the following months set the stage for the creation of gold futures trading on the COMEX in January 1975.

A worldwide feeding frenzy for gold cannonballed its price to an all-time high of $850 per ounce on January 21, 1980. Obviously, speculative excess had carried too far. Since that date the price of gold has been in a downtrend for more than 13 years. Naturally, there have been periods of respite, when prices rebounded slightly. However, on balance the long-term bear market remained intact until April 23, 1993. On that date the June 1993 COMEX Gold futures contract closed at $347.50 - which, in our opinion, heralded a reversal of the 13 year downtrend, and thus the return of Virgil's echo: "Auri Sacra Fames"

Lure, Lore of Gold

GOLD is the oldest precious metal known to man. Therefore, it is a timely subject for several reasons. It is the opinion of the more objective market experts that the traditional investment vehicles of stocks and bonds are in the areas of their all-time highs and may be due for a severe correction. In fact the traditional indicators of valuation are far past the excessive readings of 1987 and worst than even 1929! In warning recognition of current market mania, Fed Chairman Alan Greenspan poignantly admonished that current market excesses display "IRRATIONAL EXUBERANCE WHICH MAY LEAD TO A FINANCIAL ASSET BUBBLE!"

Therefore, astute and prudent investors are seeking alternative investments. Their strategy is to seek risk diversification away from stocks and bonds, currently near all-time highs - in order to take positions in hard assets, which are presently near multi-year lows, and hold promise for reasonable good returns in the future.

Why is Gold Considered So Precious?

To fully appreciate why 8,000 years of experience say gold is forever, we should review why the world reveres what England's most famous economist, John Maynard Keynes, cynically called the "barbarous relic."

Why gold is "good as gold" is an intriguing question. Dr. Sigmund Freud, the founder of psychoanalysis, suggested that "our fascination with gold is related to the erotic fantasies of early childhood." However, we think that the more pragmatic ancient Egyptians were perhaps more accurate in observing that gold's value was a function of its pleasing physical characteristics and its scarcity.

Physical Characteristics of Gold

There are many physical aspects of the yellow metal which are truly amazing. Gold is the most malleable (able to be hammered into very thin sheets) and ductile (able to be drawn into a fine wire) of all metals. It is so malleable that a goldsmith can hammer one ounce of gold into a thin translucent wafer covering more than 100 square feet only five millionths of an inch thick. It would be so thin that 1,000 sheets would be needed to make up the thickness of one newspaper page. Its ductility is equally amazing. One ounce of gold can be drawn into a wire 50 miles long! Furthermore, ONLY one ounce of this marvelous metal is required to plate a thread of copper 1,000 miles long. That's really stretching it, wouldn't you say?

Since time immemorial the noble metal's resplendent luster allows it to be designed into the world's most coveted and exquisite jewelry -- fit for queens or kings.

Gold is also one of the heaviest metals known. It has a specific gravity of 19.3, which means it weighs 19.3 times as much as an equal volume of water. Therefore, one cubic foot of gold weighs 1,206 pounds. More than half a ton! This probably explains why there has NEVER been any large armed robberies of gold bullion throughout history. Who the hell could carry it?!

Scarcity of Gold

More unbelievable than its physical characteristics is its scarcity. It is well documented that the world's holdings accumulated during all recorded history to the present is only about 120,000 metric tons. Understandably, it is rather difficult for the average person to relate to this measurement. Suffice it to say that the total world's hoard of the shiny metal will occupy a single cube 60 feet by 60 feet by 60 feet - which is equivalent to the approximate volume of three 12-room homes. This is indeed a small volume of matter to have influenced the toil and destiny of so many people since biblical days. In fact the total world's holdings of the rare metal could be transported by a single solitary oil tanker - that's if Lloyds of London would ever accept the insurance risk on this priceless cargo. The value of this priceless cargo would be approximately $1.4 TRILLION!

Another way to appreciate its scarcity is to compare it to the annual steel production in the United States. According to the Iron and Steel Institute in Washington D.C., the American industry poured an average of 10,500 tons of steel per hour during all of 1995! Please appreciate that's 24 hours per day and 365 days per year - indeed, a lot of steel. In sharp contrast the world's annual gold mine production increases the total holdings by only 2.0% per year. That's an average increase in the world's gold supply of a mere 2,000 tons per year - versus 10,500 tons of American steel per hour. Gold is indeed very, very rare.

The Extreme Difficult Task of Predicting Gold Prices

Baron von Rothschild, creator of one of the most famous financial dynasties of modern times, was once heard to have said that: "He only knows of two men who really understand the true value of gold - an obscure clerk in the basement vault of the Banque de Paris, and one of the directors of the Bank of England. Unfortunately, they disagree!"

Most serious students of international finance share his sense of frustration on the subject. In fact if you were to ask five different monetary analysts to explain why the price of gold moves the way it does, you would most likely get seven distinct answers.

Accurate predictions for the future price of gold are at best an exercise in speculation. Nevertheless, one may establish reasonable and logical criteria for forecasting gold price expectations -- based upon fundamental, technical and intermarket analysis.

"Seek the wisdom of the most expert minds in your field."

                                                               - Ralph Waldo Emerson