Gold as an Investment

Gold, symbol Au, is a soft, bright yellow, metallic element. Gold currency code - XAU, number - 959. Because of its beauty and because it does not corrode or tarnish, it has been valued by man since prehistoric times. It was particularly important to early man because it could be obtained as a free metal without complex separation techniques. Furthermore, it could be easily worked. In fact, gold has the best working qualities of any metal. It can be beaten to a thickness of 5 millionths of an inch. One ounce of gold can be beaten out to cover an area of 300 square feet. Because it is so soft, gold is usually alloyed with other metals to improve its wearing qualities.

The purity of gold is expressed in terms of its fineness, or by the karat system. In the karat system the percentage (by weight) of gold in an alloy is denoted as a fraction of 24. Thus pure gold is 24 karat gold, and 18 karat gold is 18/24, or 75%, gold. Fineness refers to the parts of gold per 1,000 of the alloy. Therefore, a fineness of 500 would represent an alloy with 50% gold.

The most common uses of gold are for decoration, as in jewelry, and as a unit of monetary exchange. Since ancient times gold has generally been the most readily acceptable form of currency. However, the use of gold coins was discontinued, for the most part, during the period between World Wars I and II. In the United States, which discontinued the use of gold coins in 1934, citizens (except for those who hold special licenses for industrial or laboratory purposes ) may not own gold except in the form of jewelry. However, in other countries, including France, Canada, and Great Britain, gold can be bought by anyone on the open market.

World Production

The leading gold-producing nations of the world are South Africa, the United States, Australia, China, Canada, and the Russian Federation (in that order).
Early Gold Production. The California gold rush of 1849 and Australian gold discoveries in 1851 were early milestones in gold production. At that time world gold production was about 6 million ounces (186.6 million grams) annually. With the discovery of gold in South Africa in 1886 and in Canada and Alaska around the turn of the century, gold production increased rapidly. By 1914 world production had reached 22 million ounces (684.2 million grams) annually; however, with the outbreak of World War I, gold production fell, reaching a low of about 16 million ounces (497.6 million grams) in 1922.
Recent Developments. In the 1930s there was a strong upsurge in gold production, stimulated by the revaluation of gold in terms of the major paper moneys in 1934. Peak production for this period came in 1940, when world production reached approximately 36 million ounces (1.1 billion grams). After 1940, production declined steadily in many countries, and in 1945 world production was only 22 million ounces (684.3 million grams). Mainly owing to increased South African production, world production increased to over 40 million ounces (1.2 billion grams) by the early 1960s. The deregulation of gold prices in the 1970s gave another boost to production, with annual output rising to nearly 80 million ounces (2.5 billion grams) by the end of the century.

The role of gold in the world today is the outgrowth of the world's currency experience since the beginning of the 20th century.

Price of Gold

The usual benchmark for the price of gold is known as the London Gold Fixing, a twice-daily (telephone) meeting of representatives from five bullion-trading firms. Besides, there is active gold trading based on the intra-day spot price, derived from gold-trading markets around the world as they open and close throughout the day.

For many years, the dollar was pegged to the gold standard.
Historically increases in the supply of paper money or fiat currency through increased money supply would cause the demand for gold to increase. There was a time when gold was money and vice versa. If citizens felt that there may be insufficient gold to cover the paper money in circulation, they would queue up at the bank to change their paper currency back into gold.
However, since the gold standard was ended on August 15, 1971, governments have been free to print as much money as they choose, without fear that their populations will come knocking on the central bank's door demanding to change their paper money back into gold.