Gold trading has a long history. Discovered in ancient times, gold has been a sign of wealth and social position in many societies since it was first used as currency. Today gold is still an important material of trade and business.
Countries value gold as a measure of wealth and a base of exchange. Individuals value gold as insurance because paper money is not always certain.
Gold continues to have effects on world financial markets today and will into the future.
The Gold Standard
Here’s a WIKIPEDIA explanation of the Gold Standard:
“The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold.
Under the gold standard, currency issuers guarantee to redeem notes, upon demand, in that amount of gold. Governments that employ such a fixed unit of account, and which will redeem their notes to other governments in gold, share a fixed-currency relationship.
Supporters of the gold standard claim it is more resistant to credit and debt expansion. Unlike a fiat currency, the money backed by gold cannot be created arbitrarily by government action. This restraint prevents artificial inflation by the devaluation of currency. This is supposed to remove “currency uncertainty”, keep the credit of the issuing monetary authority sound, and encourage lending. Nevertheless, countries under a not truly 100% gold standard, like countries simultaneously using manipulated paper currencies, underwent debt crises and depressions throughout the history of its use with the central bank manipulation and inflation of the currency. The U.S. experienced this in its Panic of 1819 after its Second National Bank was chartered in 1816.
The gold standard is no longer used in any nation, having been replaced completely by fiat currency. It still is in use by private institutions in the supply of digital gold currency, which uses accounted gold grams as money”
Disputes about when the gold standard was established have continued through history. In 1717, Sir Isaac Newton compared the value of gold to silver in his system of measurement. Some people think that this was when the gold standard was first set.
The international gold standard did not become common until the 1870s. By the 1890s, the gold standard was not popular in the industrial nations. Political movements against the gold standard began and paper-based currencies became more common. The gold standard had a series of highs and lows where it helped the international money market, and then caused problems.
During the 20th century, both World Wars and the 1930s depression had major effects on world finance. In 1944, the Bretton-Woods agreement established rules to govern the business and finance relations between nations.
Bretton-Woods Agreement as a benchmark in trading history
The Bretton Woods Agreement was signed after World War II to control the international Forex market and keep it strong. Countries that signed agreed to try to keep the value of their currency within a narrow range against the US dollar and an equal rate of gold. The dollar gained a top position as a currency and economic power moved from Europe to the United States.
In 1971, the Bretton Woods Agreement was destroyed when the US dollar could no longer be exchanged into gold. The forces of supply and demand started to control the currency market. New financial instruments and free trade appeared.
The current picture
The current picture looks very different. From the 1980s on, computers and technology have influenced the development of the Forex market. Today, traders and brokers all over the world can exchange currencies in the market. Gold is now considered as a currency like any other currency and can be traded as such. Its value or gold trading price is expressed in terms of the US dollar – that is how much gold you can buy or sell for one US dollar.
The history of gold trading tells the story of attempts to make international trade.