Gold Fever: The Gold Rush and Gold Standard
It is difficult to prove when gold was discovered by humans. The oldest finds date back to the year 5,000 BC. Thanks to the incorruptibility of gold, we have evidence of the culture of the Sumerians (from 2,800 BC), the city-states in Mesopotamia and today's Iraq.
Ancient Egypt and Gold
The ancient Egyptian pharaohs considered themselves descendants of the sky god Horus and, accordingly, they heaped themselves and their surroundings with gold. In ancient Egypt, where silver was much less expensive and had to be imported, gold received an important role in myth and faith. Not the value, but the beauty and symbolism of gold made the hallmark of kings and gods. All jewelry items that kings and priests needed, were of gold. In the 15th Century BC, Pharaoh Thutmose III had a golden chariot made in Babylon. He brought a lot of gold to Egypt, which had been steadily gained through assistance from the mines in Nubia (modern Sudan) and the Arabian Peninsula. The Egyptians were the first to step into professional mining, in which thousands of slaves worked in deplorable conditions. Gold was a symbol of power, prestige and immortality.
The New World and Gold
In 1886, when the United States of America declared their independence from the British Crown, the young state did not own any gold or silver stocks. It issued paper money, which had no coverage and led to inflation. The only significant gold deposits were discovered in North Carolina. The United States ended their struggles with Mexico and gold in 1848, by paying $15 million for a large area (Texas to California). No one knew at that point that days earlier gold had been found near a Californian sawmill. The discovery led to the first and biggest gold rush in U.S. history. Hundreds of thousands of people went by boat or across the land to California.
In the decade after the discovery of gold, over half a billion dollars worth had been found in California - almost 35 times the amount that the United States had paid for the regions of Mexico. Because of the high gold deposits and increasing colonization, California was introduced as the 31st state of the USA. In the 1860's and 1870's, the next gold rush located on the South Platte River in Colorado, had gained attention. Again, the gold deposits and the increasing population quickly resulted in the declaration of the state of Colorado. The last great gold rush in U.S. history took place in the Alaskan Klondike. No significant gold discoveries were found from 1896-1898, but the Klondike gold rush found its way into many works of literature and film history, becoming the most constant gold deposit.
Gold reserves are now stowed away at Fort Knox, Kentucky. Around 500 rail cars were needed in 1936 to gather gradually all the gold bars across the country. Fort Knox is now considered the most secure building in the world, a theft of gold is almost impossible both because of the high security and because of the enormous logistical effort.
The Gold Standard is Born... and then Dies
The years following World War I were marked by hyperinflation; reparations were wildly fluctuating and the world saw floating exchange rates. The return to the worldwide gold standard was intended, but it failed in the Genoa Conference during 1922. In 1926, the Chancellor of the Exchequer, Churchill, single-handedly tried to revive the gold standard. However, it failed to match the parity of the price and the current requirements. The result was a massive economic crisis, including strikes and nearly an uprising. At that point, the United States owned 70% of the world's gold reserves. The return to the gold standard in the 1920s proved to be one of the biggest flops in the history of economics. The main reason and cause was because of the U.S., which was caused by its policy of neutralizing the inflow of gold. With the withdrawal of the U.S. in 1932, the US off gold standard finally collapsed altogether.
Until the 1970's, gold was the basis for the value of money. The so-called "gold standard" was characterized by the money supply each country had consisting of gold. These coins were minted and paper money, which was dedicated to gold units, was out. The banks, in turn, guaranteed a fixed price of gold as a particular monetary unit.
After the end of World War II, the "Bretton Woods system" meant that many countries chose to peg their exchange rates according to the U.S. dollar. The U.S. dollar was then coupled with gold. Here, a specific exchange ratio between dollars and an ounce of gold was fixed. Countries that had pegged their currencies to the dollar were now indirectly doing so on the dependency of gold.
The end of the gold standard came against gold, among other things, by the decision of France in the 1960's and 1970's, which was to reduce its monetary reserves with the U.S. government. This reduced the economic influence of America and, made in conjunction with the enormous costs of the Vietnam War, became a turning point in the history of gold.
When the U.S. President, Richard Nixon was in office in 1971, the dollar price of gold became a specific science, (otherwise known as the so-called "Nixon Shock"). The era of the gold standard is defeated and thus, came to an end. The US, off gold standard, was still a general attraction and the value of gold remained unchanged. Buying gold at that time was also an attractive form of investment. Even today, in the 21st Century, many economists look for a return to an economic value system, which is similar to the US off gold standard ).