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When did Gold first become Money?

You don’t need us to tell you that, of all the possible precious metals to invest in, gold bullion investing tends to be the most popular form, now and throughout history.

Now here’s a question you don’t hear asked very often: Why are gold bullion investments the most popular type of metals investment?

Platinum tends to be worth much more, right? And isn’t silver more common than 24k gold bars? So why do so many investors choose to protect their assets against economic strife with bullion coins or bars?

In fact, throughout much of civilized history, gold prices weren’t even quoted. Rather, every other commodity was measured by its gold value. Then of course you have the gold standard, which we used to use to keep the value of paper dollars and non-precious metal coins under control

What it comes down to is an answer perhaps less surprising than you may have hoped, unfortunately: Gold can be found all over the world, and has found some use in nearly every documented society.

This is why gold has been used as money in various societies, independent of one another’s influence. No one country or government really “started it all”, rather, various societies started using gold independently of one another, and this carried on.

The very first gold coins were produced back in 700 BC. This came from the fact that gold was scarce. As such, it could be safely used for trading without having to actually swap goods back and forth. This was, of course, a matter of convenience.

Were the first people to buy bullion to use say, quartz rocks, instead, the value of a good or service would drop tremendously thanks to the commonness of the rock. Using a rarer metal like gold allowed the value of an object to be “worth its weight” in something that was rare.

Ironically enough, when the gold standard was put to rest in 1971, the value of the dollar went on to drop significantly shortly thereafter. Why? Well, a dollar is just paper with some ink on it. The government can then print millions upon millions of them, and with every new one printed, the dollar in your pocket becomes less rare and less valuable.

It is the rarity, the scarcity of an item that makes it valuable. When you buy bullion coins or purchase bullion bars, you are getting something of value because there’s only so much gold to go around. We’re still mining it out of the ground, yes, but you cannot simply produce gold, you cannot mint more gold.

We may one day mine every last ounce of gold out of the mountains. Money is printed on paper and minted with not-so-valuable metals. In fact, the pennies in your pocket would be worth more if you melted them down than they are as currency.

At the rate inflation is going, we may eventually come to a point where a dollar bill is worth less at face value than the money it’s printed on. With gold coins, this will never happen.

Article Archive

Theresa Bohn

April 11, 2009

 

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