Gold has held a special, almost subliminal, place in the heart of the human population for thousands of years, since the Egyptians started stamping gold bars with the symbol of the Pharaoh of the time from about 4000 BC.
Before the development of coinage, gold was held and used by priests and monarchs to demonstrate power and wealth, with smaller amounts used for jewellery and other forms of personal adornment.
As a metal, its physical properties and that fact that it isn’t very abundant in the earths crust makes it an almost useless metal for common practical usage. Paradoxically, these same properties also made gold, along with silver, the most common sense substance as a store of wealth and medium of exchange.
In simple terms, gold has been money ever since the first recorded account of using gold to simplify financial transactions and has been widely accepted as a global currency ever since the Lydians started using it about 700 BC and king Croesus firmly established an efficient coinage system around 550 BC
The Lydian people of Asia Minor (Turkey) were said to be the first people to mint and use gold and silver coins and they were also the first retailers to use gold and silver as a medium of exchange.
The Lydians developed the touchstone, as a purity test, which was a local stone that gold objects were rubbed against and the mark left on the stone was compared to 24 needles containing varying degrees of gold and silver, gold and copper and all three metals. The 24th needle was 24 carat pure gold.
The Lydian people also created the state monopoly of the issuance of coinage to control wealth and power. This state monopoly system has continued to this day with every country around the world having the power to coin, or create and control, money.
Other items of value have been forms of money in the past with varying degrees of success due to terms of exchange. Items like cattle, slaves, spices and shells were classed as money in different societies, but gold, due to its physical properties was easy to standardise and it also simplified exchange, once testing of weights and purity could be carried out.
Paper money was development in the Middle Ages to replace gold as inflation created increasingly larger transactions, making the transporting of large amounts of gold risky and cumbersome. As an insurance measure, a country’s paper money was backed by the amount of physical gold held in reserve. This gold backed, paper monetary system, was called the Gold Standard.
Paper money was basically the first widespread monetary derivative.
The Gold Standard worked well for hundreds of years as the monetary system was expanded to include various other forms of derivatives, currencies and stores of wealth like shares, cheques and bank accounts.
After the 1929 stock market crash countries needed to boost consumer spending to invigorate their economies, but with the restriction of only being able to have in circulation paper money to the same value as bullion stored, countries soon abandoned the Gold Standard and by 1934 countries were printing money as fast as they needed. This policy continues today.
As each country was able to create its own money, at whatever level the rulers wished, other derivatives were also developed with many dramatically surpassing their under-lying value. Today the value of the gold derivatives market alone is around 20 times larger than the physical market in the metal.
Gold, in its physical form, has been in use as the primary basis of money and wealth for around 6000 years and in less than 80 years, since the abolition of the gold standard, the rulers of power have developed ways to replace gold with other, more easily manipulated forms of money.
Gold is extremely durable, it doesn’t rust or rot, it can’t be reproduced at will or counterfeited, it can take many forms and it’s relatively scarce in nature. These basic intrinsic properties create the real value of gold that exists today, at the very least and if not more than ever.
The basis of the value of gold underlines the message that every Australian with an interest in the continued prosperity of this country should have a stake in the Australian gold sector.
This is one of a series of articles on gold and the Australian gold sector.
Copyright 2006 – Gold Report Australia – All rights reserved
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Posted by gold report australia 
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