Gold X Finance
THE MINERALOGY OF GOLD
Physical Properties
Gold, as a member of the copper group, exhibits various characteristics that contribute to
its distinctiveness. Firstly, it presents a range of captivating colors, including rich yellow, whitish
yellow, blue, and green when viewed in transmitted light. Secondly, it possesses a moderate
hardness level, scoring 2.5 to 3 on the Mohs scale, indicating a certain level of durability. Its
specific gravity falls between 15 and 19.3, signifying its relatively high density. Thirdly, gold
adopts an Isometric crystal system, displaying a symmetrical arrangement of atoms. With a
melting point of 1063 degrees Celsius, gold exhibits exceptional heat resistance. Furthermore,
gold is known for its opaque transparency, impeding the transmission of light. Lastly, as a native
element and precious metal, gold holds significant value and has been treasured for centuries.
Gold Occurrences
Gold is a highly sought-after mineral that can be found in various forms and deposits. The
most common occurrence of gold is as a nugget, typically containing 70-95% gold. However, it
is predominantly mined as gold ore, which appears as brown, iron-stained rock or massive white
quartz. To extract gold from these ores, they are first crushed to separate the precious metal.
There are three main types of gold deposits. The first type is hydrothermal quartz veins and
related deposits, which are found in metamorphic and igneous rocks. These veins form as a result
of hot fluids carrying gold and other minerals that precipitate in fractures and spaces within the
rocks. The second type is volcanic-exhalative sulphide deposits, which are formed by underwater
volcanic activity where gold is concentrated along with other sulphide minerals. The third type is
consolidated and unconsolidated placer deposits, which are formed by the erosion and
weathering of primary gold deposits, resulting in the concentration of gold particles in riverbeds,
beaches, or other sedimentary environments.
Quartz veins with pyrite and other sulphides are commonly associated with gold deposits.
Within these veins, gold can occur as rounded grains, flakes, or larger nuggets, depending on the
size and conditions of the deposit. These different forms of gold contribute to its allure and
desirability for both industrial and aesthetic purposes. Understanding the types and
characteristics of gold deposits is crucial for effective exploration and extraction of this precious
metal.
Uses of Gold
Gold serves a variety of purposes. One prominent application is in the realm of jewelry,
where approximately 78% of gold is utilized. Its malleability, durability, and lustrous appearance
make it a favored material for crafting exquisite ornaments and accessories. Additionally, gold
finds its way into various technological devices and industries. It is employed in the production
of electronics, such as appliances, circuits, computers, and cell phones, due to its excellent
conductivity and corrosion resistance. Furthermore, gold's unique properties make it valuable in
dentistry, where it is used for dental fillings, crowns, and bridges. In the realm of photography,
gold plays a role in certain processes, contributing to the creation of high-quality images.
Overall, while approximately 10% of gold is dedicated to coinage and the economy, the
remaining 12% finds its way into an array of applications across different sectors, highlighting
the versatile nature of this precious metal.
Countries that Produce the most Gold
Several countries around the world are significant producers of gold. Among them are China,
Australia, Russia, the United States, Canada, Indonesia, Ghana, Peru, Mexico, and Kazakhstan.
These countries possess substantial gold reserves and actively engage in gold mining and
production. They contribute to the global supply of gold, meeting the demand for various
industries and investment purposes.
Gold Mining
Hard Rock Mining
Hard rock mining is the primary method for extracting gold from rock while open-pit
mining is utilized in certain cases. Barrick Gold Corporation operates one of the largest open-pit
mines in North America. Underground mining involves extracting gold through tunnels or shafts,
with south Africa being home to the world’s deepest hard rock gold mine.
By product gold mine, Placer mining, Sluicing
By product gold mining is another way of extracting gold. This is done by mining large copper
mines. Other forms include placer mining, where water is used to extract the mineral because of
its loose material making it more difficult to tunnel out. Sluicing is also among the ways of
mining, here a sluice box [sluice box: manmade channel with riffles] is used to extract the gold
from the placer deposits.
GOLD AS CURRENCY
Metal coins
Ancient History
Throughout ancient times, gold emerged as a prized and esteemed resource, gradually
evolving into a recognized form of currency. One of the earliest instances of gold as coinage
occurred around 700 B.C. , where innovative merchants introduced metal coins made of a gold
and silver alloy. These coins bearing standardized value, revolutionized economic transactions,
facilitating trade and symbolizing prosperity. The use of gold as currency, spanning across
various civilizations and epochs, left an indelible mark on human history, shaping the way
societies conducted commerce and establishing gold’s enduring reputation as a timeless store of
wealth.
The Fortune of Lydia
Centuries ago in ancient Lydia, around 700 B.C., enterprising Lydian merchants seized upon
an ingenious idea to create the very first coins. They were no ordinary chunks of metal, they
were molded from a blend of 63% gold and 27% silver electrum. This innovation marked the
birth of standardized currency. As time unfolded, so did the wealth of Lydia, Under the reign of
Croesus, the final monarch of the Marmande dynasty who managed to lead Lydia to an
accumulated colossal fortune in gold.
An International Currency
The Start of the Gold Standard
The gold standard, a monetary system in which the value of a currency is directly linked
to a fixed amount of gold, emerged as a significant global phenomenon during the late 19th and
20th centuries. It’s origins can be traced back to the early 19th century when various countries ,
including Great Britain began adopting gold as the basis for their monetary systems. The pivotal
moment came in 1844 with the passage of the Bank Charter Act in the United Kingdom, which
firmly established the gold standard by requiring the Bank of England to hold gold reserves to
back its issued banknotes.
The widespread acceptance and adoption of the gold standard as an international currency
gained momentum in the late 19th century. In 1871 Germany, France, the United States, and most
of the countries of the developed world adopted the gold standard. This international adoption of
the gold standard fostered stability and facilitated global trade by ensuring a fixed exchange rate
between practicing countries. However, this new adoption did not last due to the conflicts of
World War I.
The Fall of the Gold Standard
From 1925 to 1931 a brief reinstatement of gold as currency was introduced as Gold Exchange
Standard. With this, countries could hold gold or reserve currencies like dollars or pounds (with
exception of United States and United Kingdom which had exclusive gold reserves). It faltered
again due to Britain abandoning Gold as a form of exchange. In 1933, President Roosevelt
nullified all contracts specifying gold payments. In 1971, President Nixon declared an end to the
gold redemption, making the final abandonment of the gold standard,
How the Gold Standard Worked
The gold standard was a monetary system where the value of a currency was directly linked to a
fixed amount of gold. Because of this each unit of currency had a specific gold value. The
conversion rate between the currency and gold was determined by the government or central
bank and it remained consistent. Operating on the principle of coverability meant that individuals
and governments could exchange their paper money or banknotes for gold at the established
conversion rate. This convertibility provided confidence and stability in the currency, as it was
backed by a tangible and valuable asset. To ensure the integrity of the gold standard,
governments held significant gold reserves that served as a guarantee that the currency could be
redeemed for gold demand.
The United State’s Conversions
In the case of the United States, the value of the U.S. dollar was determined by its convertibility
to gold. The dollar’s value was set at $20.67 per ounce of gold under the pre-1933 gold standard,
meaning that individuals could exchange $20.67 for one ounce of gold.
In 1944 the U.S. dollar became the primary international; reserve as currency. The dollar was
fixed to gold at a rate of $35 per ounce. This meant that central banks and foreign governments
could exchange their U.S. dollars for gold at this fixed rate. The value of the dollar in relation to
gold remained fixed as long as the gold standard was in place. It proved stability in international
trade and finance, as countries could rely on a common measure of the value. However the gold
value did not manage to stay in place.
OUTCOMES OF THE GOLD STANDARD
Now let us delve into the positive and negative attributes associated with the implementation of
the gold standard, along with its potential effects on government and the economy. The gold
standard, as we now know, has been a subject of much debate and scrutiny throughout history.
Proponents argue that it provides stability, fiscal discipline, and a reliable store of value, while
critics raise concerns about its inflexibility, potential deflationary pressures, and limitations on
monetary policy. By examining both sides of the coin, we will gain a comprehensive
understanding of the implications of the gold standard on governmental institutions and
economic dynamics.
Negative Attributions
The gold standard, with its inherent limitations on the money supply, can lead to a situation
where economic growth may outpace the availability of money. This mismatch occurs because
new money cannot be created and circulated unless there is a corresponding increase in the gold
reserves backing it. Consequently, this can result in deflation and economic contraction.
Historical data supports this notion, as between 1913 and 1971, during the period when the
United States adhered to some form of the gold standard, deflation occurred in 12 out of those
years. According to Federal Reserve Chairman Ben Bernanke, the severity and duration of the
deflation experienced during the late 1920s and early 1930s indicate a monetary origin, with a
close association between deflation and countries' adherence to the gold standard. However,
since the U.S. departure from the gold standard in 1971, deflation has only occurred in one year,
which was in 2009, with a rate of -0.4%. This highlights a shift in deflationary tendencies
following the abandonment of the gold standard.
A gold standard, while providing stability, can hinder the necessary expansion of currency
during times of war. Both the United States and several European countries temporarily
abandoned the gold standard to finance their war efforts by printing more money. This move was
prompted by the deflationary effects of the gold standard, which exacerbated unemployment and
economic challenges. The United States, in particular, financed its involvement in World War II
through measures such as printing money, selling war bonds, and running significant deficits.
These examples demonstrate the need for flexible monetary policies during times of war, which a
strict gold standard may restrict.
Positive Attributions
The Federal Reserve's ability to print fiat money and maintain loose credit conditions by
keeping interest rates low between 2001 and 2006 played a significant role in the formation of
the real estate bubble and subsequent Great Recession. However, the response to the recession
involved employing the same strategy that initially caused it: printing more money. With over $2
trillion in bailouts for failing financial institutions funded by the Federal Reserve, the stage was
potentially set for another bubble and subsequent collapse. This pattern highlights the mixed
track record of the Federal Reserve in providing economic stability through the use of fiat
money. Since the abandonment of the gold standard, the United States has experienced 13
financial crises, including the financial crisis of 2008-2009 and the recent COVID-19 pandemic
recession.
A gold standard serves as a check on government power by imposing limits on money
printing and controlling national debt. Unlike fiat currency, where the government can create
money at will, a gold standard requires that new money be backed by an equivalent amount of
gold. This restriction ensures that the government cannot simply manufacture money out of thin
air. By linking the money supply to a tangible asset like gold, a gold standard provides an
important safeguard against excessive government control over monetary policy.
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