Got Gold?
Got Gold?
Sanjib Saha February 7, 2020
YEARS AGO, I spent a few days in Bangkok touring the city. A highlight of my short stopover was the temple of Wat Traimit, which houses a five-and-a-half metric ton Golden Buddha, made of approximately $250 million of gold.
Cast more than 700 years ago, the statue symbolized the prosperity and cultural heritage of Sukhothai, the first Thai kingdom. Sometime in the 18th century, the statue was completely plastered over to conceal its value from Burmese invaders.
The significance of the statue was forgotten for some 200 years, until the plaster accidentally chipped off to reveal the gold underneath. The miraculous 1955 discovery made headlines and the statue was restored to its former glory. I was mesmerized by its brilliance and beauty.
Our longing for gold is as old as recorded history. It was significant thousands of years ago, as evidenced by Egyptian archeology. Ancient Greeks, Incans, Aztecs and many other civilizations used gold. It was viewed as a status symbol to separate the elite from the ordinary. Holding gold was synonymous with holding power.
Why such a deep-rooted fascination? There’s no simple answer. The color and luster of the metal create a unique aesthetic appeal. Gold is scarce, yet durable and resilient, hence it’s historical role as a way to store wealth and transfer it to future generations. Even today, in many countries, gold is widely used in social ceremonies and religious offerings. Strong consumer demand persists.
For centuries, gold also played a vital role in monetary systems. The gold standard, a system that promised a fixed gold-based exchange rate for circulating paper currency, was widely used by many countries until World War I. In 1944, gold’s importance was reestablished by the Bretton Woods agreement.
This new system pegged all other currencies to the U.S. dollar and allowed them to be converted to physical gold at $35 per ounce. But the new system soon faltered. The international currency-to-gold convertibility was finally abolished almost half-a-century ago by President Nixon.
Nixon’s decision triggered two shifts in the global monetary system. First, the smooth functioning of fiat—or paper—money around the financial world became solely dependent on the responsible, collaborative action of central banks. Second, the price of gold went haywire.
It spiked almost 20-fold in less than 10 years, only to lose 60% over the following two decades. The rollercoaster ride continued in the current century. Gold climbed from less than $275 per ounce in 2000 to more than $1,900 in 2011. From there, it dropped below $1,075 in 2016 and then crept up again, closing yesterday at $1,570. Widely differing views on its value have made gold a highly speculative asset.
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