Evidence of the use of currency has been found in the ruins of numerous civilizations of old. While it was common sense for the peoples of past times to trade goods amongst themselves and with neighboring tribes, they quickly discovered that this method of direct bartering could be very inconvenient depending on the circumstances.
A monetary system was put into place in many societies so that people could buy the things they wanted without having to bring along all of their material possessions. The currency used to take the place of material goods came in many forms that ranged from shells and rocks to grains, rare crystals and precious metals. Of the world’s precious metals, none have become as widely used throughout time as gold.
Rarity
There is no doubt that gold is a rare metal. Statistics show that the world’s largest known reservoirs of gold are already nearly dried out today. Finding new gold deposits can be difficult, time-consuming, costly and dangerous. In fact, an article from National Geographic noted that “in all of history, only 161,000 tons of gold have been mined—barely enough to fill two Olympic sized swimming pools.” Despite this—or perhaps because of it—gold continues to be a valued commodity in the stock markets today.
Ease of Transportation
Gold is easy to transport. This added to the metal’s historical significance, as several nuggets of gold were far more portable than several sacks of grain or a few cattle. Gold can also be manipulated quite easily. It can be melted down and turned into jewellery, cutlery, ingots and more. Combined with its natural beauty and perceived value, the ability to carry gold makes it an extremely useful form of currency.
Wide usage Gold has been used in most of the world’s major civilizations as a form of currency. It has developed a reputation over time and remains in circulation in nearly every country. Almost everyone recognizes gold as being valuable and will barter with it.
Durability
While not the strongest of metals, gold is far tougher than many other things that have been used as currency throughout time. Paper money has no chance of outlasting a solid block of gold in any type of environment. Even harder metals, such as iron, fare worse than gold as far as the test of time goes.
Iron currencies can oxidize, rust and breakdown when exposed to the elements, while gold remains highly resistant. The durability of gold makes it an excellent choice for regular exchanges between hands and long-time storage.
Single Grade of Quality
Gold’s value is determined by weight alone. There is no such thing as different grades of gold. Karat measurements designate the proportion of gold compared to other metals in an object, such as a piece of jewellery. This makes trade much easier since the current market value of gold is the same everywhere in the world. When dealing with other common currencies, like rare gems, the many grades of quality involved make trading and valuations a very complicated process.
Difficult to Counterfeit
Today, testing an item for gold content is fairly simple. There are many scientific tests that can be used to check for density discrepancies between gold and other metals. Touchstone testing and other lab tests can reliably determine whether or not an object contains gold and how much of it there is. Today’s gold jewellery is usually stamped with special markings to indicate its presence.
Steady Global Supply
Discovering new gold reservoirs is very difficult in today’s world since the major ones have been exhausted. This means that the supply of gold on the planet tends to stay fairly constant, resulting in a fairly constant value. Unlike a fiat system, in which paper money can be printed at will to lower market value, gold cannot be manipulated in that way due to limited natural supply.
It is for this reason that some argue a return to the gold standard would reduce inflation and stabilize the economy. Despite the fact that the United States once operated on a gold standard—which the country abandoned in 1971—others argue that a return to the gold standard would be impossible with today’s still-recovering economy, since reverting to this monetary system would cause a dramatic deflation of the U.S. dollar. While the question of whether or not the U.S. should revert back to the gold standard remains unanswered, the true value of gold has been determined by historical events, and it is sure to retain its physical and sentimental value for many years to come.
Alfonso has been covering the forex market for more than 10 years, working at trading desks and global research and analysis teams. He works with OANDA regularly as a market specialist in business dailies and online portals. You can read more of Alfonso’s work at Google+.