The History of Gold Pricing

The price of gold has been a topic of great interest to both scholars and the general consuming public for over three thousand years. Gold is not only the basis of monetary units all over the world, but also the focus of literature and the arts, endowing it with paramount general fascination. Pivotal events throughout history have influenced and helped to determine the manner in which gold is priced and valued.

The first event in history which had a tremendous influence on gold prices was the introduction of the gold standard. Britain was the first to adopt an official gold standard, which is a monetary system based on a fixed weight of gold. This was done following the Napoleonic wars in the early part of the 19th century. During the second half of that century, there were a number of European nations who quickly followed suit. It was only in 1897 that the United States finally adopted the gold standard as well, making "greenbacks" issued during the Civil War convertible into gold. The United States finally introduced the gold standard into legislation in 1900. By the time the First World War broke out in 1914, the gold standard had been accepted by a vast number of countries, beginning to shape it into a universal system.

The gold standard actually consists of two different monetary statements - "official price" and "mint price". The first denotes the stipulated value of gold coin per standard ounce and the latter is the price per standard ounce received by the depositor of gold. The "mint price" will take the expenses and profits of the monetary authority (mint) into consideration. It is important to understand that it is the official price, as opposed to the mint price, which is tabulated in the official gold price series.

In principle, gold exchange rates in the foreign exchange market could fluctuate only within very narrow limits in accordance with shipment and insurance costs of gold. In 1919 the London Gold Fixing group was first established, and they have been providing market users with a single quoted gold price ever since. The London Gold Fixing Group provides a published benchmark gold price, which is widely adopted by gold producers, consumers, gold investors and even central banks, even in this present day. The act of Gold Fixing is said to last as long as it is needed in order to provide a gold figure which best satisfies both sellers and consumers.

The period that followed the First World War was a particularly harsh one in terms of economic stability, dramatically affecting the status of gold. Each combatant nation, one by one, started to announce their cessation of gold convertibility. This effectively caused gold exchange rates to fluctuate heavily during the early and mid-twenties. The United States gold currency had greatly improved its competitive strength over European currencies during that time, reflecting on U.S. economy growth. Nonetheless, in 1971 President Richard Nixon finally announced the end of the convertibility of US dollars into gold. This marked the end of an era where gold played a pivotal role in worldwide currency systems. It became known in the pages of history as the event which officially broke the ties between gold and circulating currency, consequently shifting the world financial system into today's "floating currency".