Gold: introduction to the precious metal and its historical and geological origin
Gold is one of the most precious and sought-after metals in the history of mankind. Since ancient times, gold has played a vital role in the economy, politics and culture of many civilizations. In this article, we trace the history of gold, starting with its use as a jewel, as a currency, as a store of value and as an industrial one. We will also see how much gold is produced and consumed in the world, and which are the main producing and consuming countries of this metal.
The use of gold as jewelry dates back thousands of years. The ancient Egyptians, for example, used gold to make funerary masks, amulets and ornaments for pharaohs and nobles. Gold was considered the metal of the sun, a symbol of power and immortality. Other cultures, such as Mesopotamian, Greek, Roman, Chinese and Indian, also valued gold for its beauty and durability.
The use of gold as money began around the 7th century BC, when the kings of Lydia, a region of present-day Turkey, began minting the first gold coins. These coins had a standardized weight and purity, and facilitated trade between peoples. Soon, other nations also adopted the gold standard, based on the value of gold. The gold standard stipulated that the amount of money in circulation in a country was proportional to the amount of gold held by the central bank. In this way, fixed exchange rates were established between the different currencies, depending on the relationship between the underlying quantities of gold.
The gold standard reached its peak between 1870 and 1914, when most countries in the world adopted the so-called gold standard. The gold standard required each central bank to guarantee the convertibility of its currency into gold at a fixed rate. The gold standard favored price stability and international trade, but limited the ability of central banks to intervene in monetary and fiscal policy. With the outbreak of the First World War, many countries abandoned the gold standard to finance war spending with the printing of money.
After the end of the war, some countries tried to re-establish the gold standard, but with little success. The crisis of 1929 and the great depression that followed led to the definitive end of the classical gold standard. In the 1930s, many countries adopted the so-called gold exchange standard, which required central banks to hold their reserves in US dollars or British pounds, convertible into gold at a fixed rate. The United States thus became the largest holder of gold in the world.
In 1944, at the end of the Second World War, the Bretton Woods conference was held, in which a new international monetary system was established based on the US dollar as the reference currency. The dollar was the only currency convertible into gold at a fixed rate of $35 per ounce (28 grams). The other currencies had fixed but adjustable exchange rates against the dollar. The Bretton Woods system lasted until 1971, when US President Richard Nixon unilaterally suspended the convertibility of the dollar into gold, ending the era of gold as a monetary base.
Since then, gold has lost its role as an official currency, but has continued to be a store of value and a safe-haven asset in times of economic and political crises. Gold is also widely used in the industrial sector, especially in electronics, due to its conductivity and corrosion resistance properties. Every year, about 3,000 tons of gold are produced in the world, of which about 50% is used for jewelry, 40% for gold reserves and investments, and 10% for industry. The main gold producing countries are China, Australia, Russia and the United States. The main gold consuming countries are China, India, the United States and Turkey.
Gold is therefore a metal that has accompanied the history of humanity for millennia, and which still today exerts a great charm and a great influence on the world economy.
Stock exchanges of physical gold
If you are interested in investing in physical gold, one of the options you have is to buy it through an exchange. An exchange is a regulated market where goods and services are traded, including precious metals such as gold. The best known exchanges dealing in physical gold are the London Bullion Market Association (LBMA), the New York Mercantile Exchange (NYMEX) and the Shanghai Gold Exchange (SGE) .
To buy or sell physical gold on an exchange, you need an authorized intermediary, called a broker, who can connect you with other market participants. The broker will charge you a commission for his service and ask you to open an account with a bank or custodian company that can hold your gold.
Physical gold that is traded on exchanges is standardized in terms of quality and quantity. The most common format is that of bars, which weigh approximately 12.5 kg and have a purity of at least 99.5%. There are also other formats, such as coins or small bars, but they are less common. Shanghai, for example, has a delivery service for even very limited quantities of gold, such as 100 or 50 gram bars. Clearly smaller formats allow for more widespread public access to the physical gold market.
When you place an order to buy or sell physical gold on an exchange, you must specify the price you are willing to pay or receive, the quantity you wish to trade and the delivery date. The delivery date is the day your gold is transferred from your custody account to that of your buyer or seller. Usually, delivery takes place within two working days from the order date.
Delivery of physical gold can take place in two ways: by physical transport or by electronic transfer. In the first case, your gold will be shipped from one authorized warehouse to another, under the supervision of an independent body which certifies its quality and quantity. In the second case, your gold will simply be recorded on the exchange's computer system as being transferred to your buyer or seller, with no physical movement.
Both methods have advantages and disadvantages. Physical transport allows you to have direct control of your gold and to choose where to store it, but incurs additional costs for transport, insurance and security. The electronic transfer allows you to save costs and speed up operations, but requires you to rely on a third party to keep your gold and who can guarantee its availability in case of need.
Gold ETFs, i.e. paper gold
**What are physical gold ETFs?**
ETFs (Exchange Traded Funds) are investment funds that track the performance of an index, a commodity, a currency or another underlying. ETFs are publicly traded and can be bought and sold like stocks.
Physical gold ETFs are a type of ETF that invests directly in physical gold, i.e. in gold bars or coins stored in special vaults. This means that physical gold ETFs are hedged 100% of their value back to real gold.
Physical gold ETFs differ from synthetic gold ETFs, which instead use financial derivative instruments, such as futures contracts or options, to track the price of gold. Synthetic gold ETFs do not hold physical gold, only contracts that expose them to counterparty risk and leverage risk.
**What are the advantages and disadvantages of physical gold ETFs?**
Investing in a physical gold ETF has several advantages over other ways of investing in gold, such as buying physical gold directly or investing in shares of mining companies.
The main advantages of physical gold ETFs are:
– Liquidity: physical gold ETFs can be traded easily and quickly in the secondary market, with a very low bid-ask spread. In addition, physical gold ETFs have a high capitalization and a large trading volume, which ensures their liquidity even in periods of high volatility.
– Security: Physical gold ETFs offer greater security than buying physical gold directly, as they eliminate the costs and risks associated with storing, transporting and insuring gold. In addition, physical gold ETFs are subject to rigorous scrutiny by regulators and independent auditors, who verify the quality and quantity of the gold held.
– Diversification: physical gold ETFs allow you to diversify your portfolio with an asset that has a low correlation with other financial assets, such as shares or bonds. In fact, gold is considered a safe haven asset which tends to maintain its value in times of economic, political or social crisis.
– Efficiency: physical gold ETFs have very low management costs compared to other investment funds. In addition, physical gold ETFs have advantageous taxation in Italy, as they are exempt from capital gains tax if held for at least 7 years.
However, investing in a physical gold ETF also has some disadvantages, including:
– Market risk: physical gold ETFs are exposed to fluctuations in the price of gold on the international market, which depends on various factors, such as supply and demand, inflationary expectations, the US dollar exchange rate, geopolitical tensions and the monetary policies of central banks. The price of gold can therefore undergo significant variations in the short and long term.
– Currency risk: physical gold ETFs are denominated in US dollars, which is the reference currency for gold trading. This means that Italian investors are exposed to exchange rate risk between the US dollar and the euro, which can negatively or positively affect investment returns.
– Counterparty risk: physical gold ETFs are issued by financial companies which act as the investor's counterparty. This means that, in the event of insolvency or bankruptcy of the issuing company, the investor could lose the value of his investment or suffer delays in repayment. To reduce this risk, physical gold ETFs are usually backed by an independent trustee who is charged with looking after the interests of investors.
The Cosmic Origin of Gold
Gold is a chemical element with the symbol Au and the atomic number 79. It is a noble metal, very ductile and resistant to corrosion, which has a bright yellow colour. Gold is one of the heaviest metals that exist in nature, and its origin is linked to extreme cosmic phenomena, such as supernova explosions or collisions between neutron stars. These events produce temperatures of billions of degrees, capable of melting surrounding particles and creating new heavy elements, including gold. The gold thus formed is then dispersed into space in the form of stardust, which can later clump together to form planets or asteroids.
The formation of gold deposits on Earth
The Earth was formed about 4.5 billion years ago by the condensation of a part of the stellar dust present in the solar nebula. In this process, some of the gold in the dust was absorbed into the earth's core, where it is still found today. However, some of the gold remained in the earth's crust or mantle, thanks to the impacts of numerous asteroids that hit our planet in the first billion years of its history. These asteroids brought with them additional amounts of gold and other metals, which mixed with Earth's rocks.
Gold deposits on Earth can be classified into two main types: primary deposits and secondary deposits. Primary deposits are those where the gold is still found in the original rocks in which it was formed or where it was carried by asteroids. These rocks can be igneous (formed by the cooling of magma) or metamorphic (formed by the transformation of other rocks under the effect of pressure and temperature). Primary deposits are often associated with minerals such as quartz, pyrite, chalcopyrite, galena, pyrrhotite or arsenopyrite, which may contain traces or grains of gold. Secondary deposits are those in which the gold is found in the form of loose nuggets or flakes, separated from the original rocks by erosion caused by water or wind. These gold particles can be transported by rivers or glaciers and deposited in areas where the flow of water slows down or changes direction, forming so-called placers or alluvial deposits.
Gold mining in antiquity
Man has discovered the existence of gold since prehistoric times, and it was probably the first metal to be used to create jewelery and jewellery. The first evidence of the use of gold dates back to the Upper Paleolithic (about 40,000 years ago), when small ornamental objects were made with the native gold (ie 100% pure) found in the river placers. The first civilizations that developed a real goldsmith's art were those of Mesopotamia, Egypt, China and the Americas. These civilizations used various techniques to work gold, such as casting, hammering, filigreeing, granulating, setting, soldering, gilding and enamelling. Gold was considered a symbol of power, wealth and divinity, and was used to adorn temples, tombs, statues, crowns, jewels and coins.
Ancient Rome was one of the largest consumers of gold in history. The Romans were in fact famous for their luxury and opulence, and they used gold to make objects of all kinds, from furniture to tools, from weapons to clothes. Gold was also the primary means of payment and trade between the various peoples of the ancient world. To satisfy their thirst for gold, the Romans had to look for new sources of supply, both within and beyond the borders of the empire. The Romans inherited from previous civilizations the knowledge and techniques for the extraction of gold from primary and secondary deposits. For primary deposits, the Romans used to dig tunnels in the rocks or build vertical shafts, from which they extracted the raw ore with the help of wheelbarrows or baskets. The ore was then crushed into smaller pieces with hammers or pylons, and then washed in special tanks to separate the gold from the other minerals. For secondary deposits, the Romans instead used to divert the course of rivers or springs with dams or canals, in order to expose the gold-rich river bed. The gold was then collected with shovels or sieves, or with terracotta pots with holes in the bottom (called dolia) which were immersed in water and then lifted.
The main gold deposits exploited by the Romans were in Spain (especially in the Asturias region), in Gaul (especially in the Aquitaine region), in Dacia (present-day Romania), in Egypt (especially in the Nubia region ) and in Africa (especially in the Sudan region). The Romans also imported gold from the eastern regions of the empire, such as Arabia, India and China, where the gold was traded for silk, spices and precious stones. It is estimated that in the heyday of the Roman Empire (between the 1st and 2nd century AD), the annual production of gold was around 200 tons.
Gold mining today
Gold mining today is a very different activity than it was in antiquity. Modern techniques are much more sophisticated and advanced, but also have a much greater impact on the environment and people's health. The main challenges facing us today are in fact those of finding new gold deposits in remote or deep areas of the Earth, of reducing the costs and times of extraction and treatment of the mineral, of minimizing waste and harmful emissions, and of ensure the safety and respect of workers' rights.
Modern gold mining techniques can be divided into two categories: mechanical techniques and chemical techniques. The mechanical techniques are those which are based on the exploitation of the force of gravity or hydraulic pressure to separate the gold from the rocks or sand. These techniques are similar to those used in antiquity, but have been improved with the use of more powerful and precise machinery, such as dredges, mechanical shovels, crushers, ball mills, centrifugal concentrators or magnetic separators. Chemical techniques are those which are based on the use of chemical substances which combine with gold allowing it to be distinguished and separated from the other components of the various minerals. Subsequently these particular solvents are in turn separated, leaving the gold in its purity.
Here's where the 10 largest mines in the world are located.
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The article Gold: introduction to the precious metal and its historical and geological origin comes from Scenari Economici .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/loro-introduzione-al-metallo-prezioso-e-sua-origine-storica-e-geologica/ on Fri, 18 Aug 2023 13:00:11 +0000.