The story of gold's early years is one of trade, empire-building and aggression. However, its value has steadily declined, by Gillian O'Connor

Gold's crucial role in the international monetary system in the late 19th and early 20th centuries was "a 150-year aberration, a blip in the multi-millennia history of gold accumulation", quips Andy Smith of Mitsui. Until around 1850 it was a genuinely rare metal, most coinage was silver and the ratio between gold and silver prices had stayed within a broad band of 10 to 15 for the previous 8½ centuries. After 1850, large gold discoveries in the US, Australia and South Africa, which coincided with a period of rapid expansion of trade and industry, encouraged a number of countries to adopt the gold standard - underpinning their domestic currencies by giving them a set equivalent in ounces of gold.

ost of the new supplies of gold went into coins, held by private individuals. But by the beginning of the 20th century central banks took over as the main holders, building war chests ahead of the first world war. This concentration continued after the war, with the US accumulating more and more, once most other countries had abandoned the gold standard.

The Bretton Woods agreement of 1944 gave gold a role in the system of fixed exchange rates. Once that system had broken down, the metal ceased to have a clear monetary role. Its price, long pegged at $35 per ounce, was decontrolled by stages in the early 1970s, and soared to an all-time record of $850 per ounce in 1980. It has been in broad decline ever since.

But what happened before this 150-year blip? The story of those early years is one of trade, empire building, and aggression.

When Europe emerged from the Dark Ages, it was short of gold. So, as the Crusaders opened up the trade routes to the Middle East, they paid - when they paid - in silver. They also bought up gold locally.

Soon the Mediterranean countries, and in particular Venice, had become the crossroads for the international gold and silver trade. Europe still imported most of its gold from Africa.

In the 13th century Venice, which had become the pre-eminent mercantile power, started minting the ducat, which, with its purity tightly controlled, was minted, weight unchanged, for the next 500 years. No wonder Shylock was as much concerned about the well-being of his ducats as that of his daughter.

Soon gold coinage became the fashion among the merchant class, and the search for new sources of supply was on. In the 14th century Hungary led a European mining boom.

But eventually the Hungarian mines passed their peak. Venice received the lion's share of gold coming from Africa and Central Asia, and by the 15th century the rest of Europe began to look further abroad to satisfy its new gold habit.

The Genoese and Portuguese started a race to track African gold to its source. The Genoese tried the Trans-Saharan route. Prince Henry the Navigator encouraged his captains to venture down the west coast of Africa, where they eventually established themselves in the "Gold Coast", now Ghana. Still unsatisfied they carried on round the Cape of Good Hope opening the sea route to India and the Far East.

Christopher Columbus, a Genoan by birth, took a different approach. Hoping to reach the east by going west he sailed across the Atlantic to stumble on the Americas for the benefit of Spain.

The European scramble for the gold of South America in the 16th century was marked by outstanding philistinism and barbarism. Most of the intricate gold ornaments of the Chimu and Inca people were melted down, and the ransom demanded for emperor Atahualpa alone yielded 150,000 ounces of gold - roughly a year's global production at the start of the century.

Would-be world powers such as England, with no significant source of gold imports, took to debasing their coinage to pay for their wars (under Henry VIII) or piracy - attacking the Spanish bullion fleets - (under Elizabeth I).

Perversely, what the explorers also found in South America was vast reserves of silver, notably at Potosi in Bolivia, which temporarily swamped gold's European renaissance.

The discovery of large gold reserves in Brazil brought gold back into prominence in Europe. By the middle of the 18th century South America was the dominant world supplier, with Africa in second place.






In the 19th century the balance of world gold production changed radically again. Russian output was the first to boom, but it was soon dwarfed by the US, Australia and South Africa. Today the top six producing countries are South Africa, the US, Australia, Canada, China and Indonesia.





The Millennium in Gold 1000 to 1999 by Timothy Green.
£15.00 from Rosendale Press, 8 Ponsonby Place, London SW1P 4PT.



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