2012 Gold Investment Guide

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Gold:

What It Is, How to Invest It,

Where It Comes From, andWhat You Can Do With It Today


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PREFACE

Te Gold Rush Of 2012 Is Gold

Now I know that seems like a weird statement to be making, but when you take the time to read this book

in full you will realize, as I do, that the best investment vehicle for 2012 is gold. Im not just saying that.If you look at how the price of gold moved in 2011 compared to other investments you will see that gold

outperformed the market.

In 2012 I predict that this will continue. I dont want you to take what Im saying just at face value. I want

you to see the facts, explore the figures and acquire the knowledge that will allow you to come to the same

conclusion that Ive come to:

Te Gold Rush Of 2012 Is Gold.

Ive put this book together to inform you on how you can capitalize on the global financial crisis. raditionallyduring a global recession or a global depression, there comes a time when savvy investors can exploit unique

opportunities to generate wealth and that time is now. You see, wealth never really leaves this world, it just

transfers from one person to another.

Te Question Is, Are You Going o Be A Winner Or A Loser?

As you read through all ten chapters of this book you will gain knowledge of the strategies and investment

vehicles that you need to not only secure your existing wealth, but to also to gain the best position to exploit

the price movements I anticipate over the next 12 to 18 months. But I want to warn you to read fast. Teseprice movements are happening now!

Now there is one thing I want to share with you

.raditionally I dont like to make predictions.

raditionally Im very conservative about what I say publicly about gold or any investment vehicle, but in this

book in the final chapter, chapter ten. I outline my exact predictions for gold in 2012. I tell you exactly what

is influencing the market right now and where I expect the price of gold to move.

When you read this chapter, just this one chapter in my book, you will feel empowered with the confidence

that you need to become a successful Gold investor. Imagine, if you knew what one of the foremost experts

on Gold predicted the 2012 closing price would be. Tis information would give you the ability to invest in

Gold now and reap financial rewards.


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Be warned though, not every single gold investment vehicle is right for you, and thats why I dedicated a whole

chapter, chapter eight, to highlight to you the different gold investment vehicles that you can utilize.

If you really want to capitalize on this market then I strongly urge you to jump forward to chapter eight and

chapter ten right now. After reading just these two chapters, you will realize exactly what Im talking about,

and understand exactly where golds going and which investment vehicle is right for you.

Im not saying that the rest of the book isnt worth reading. In fact, if anything, Im saying the complete

opposite because I believe as an investor you need to equip yourself with all the knowledge, resources and

tools that you need to be successful. Knowing the history of gold lets us better understand the future of this

precious metal investment.

I hope you will enjoy this book as much as I have enjoyed putting it together for you. ake what is printed

between these two covers, learn it and then use it to create wealth in 2012!

Good luck.

DISCLAIMER: Past performance is not indicative of future results. rading in the commodities marketscarries a high degree of risk and may not be financially suitable for all the public. Tere could never be any

guarantees of future gains. Tis book does not constitute a solicitation or offer of any kind. You must consult

your financial advisor before engaging in any type of operation.

Tis is a sample chapter from my 84 page ebook2012 Gold Investment Guide I hope you have enjoyed it.

You can download the full version completely free, by visiting

our website and filling out the Free registration form.

http://www.emc-intl.com/ebook/register.html


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Contents1.0 Te Ornate History of Gold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

1.1 Beginnings of the Gold rade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

1.2 Te Early Gold Coin Ideals and Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1.3 Te Bank Note and Silver Currency Crisis of 17501870 . . . . . . . . . . . . . . . . . . . 13

1.4 England and the Gold Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

1.5 United States and the Gold Market in the Early Days . . . . . . . . . . . . . . . . . . . . . . 14

1.6 Te Gold Rush . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

1.7 International Gold Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

1.8 Japan and the Gold Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152.0 Te Gold Exchange Standard (18701914). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

2.1 Impact of World War I (19141925) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

2.2 Te Gold Bullion Standard and the Decline of the Gold Standard

(19251931) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

2.3 Depression and World War II (19321946) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

3.0 Te History of Gold as a Currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

3.1 Hard and Soft Currencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

3.2 Examples of Hard Currencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

3.3 Hard and Soft Money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

3.4 Fiat Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

3.5 Te history of fiduciary money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

4.0 Gold Reserves and Banks oday. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

4.1 Te Largest Gold Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

4.2 Who Owns Most of the Worlds Gold, and Whats it Worth? . . . . . . . . . . . . . . . . . 31


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5.0 Gold mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

5.1 History of Gold Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

5.2 Placer mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

5.3 Panning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

5.4 Sluicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

5.5 Dredging . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

5.6 Cradle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

5.7 Hard Rock Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

5.8 Byproduct Gold Mining. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

5.9 Gold Ore Processing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

5.10 Cyanide process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375.11 Business Side of Gold Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

5.12 Adverse Effects of Gold Mining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

6.0 What Influences Gold Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

6.1 Gold supply and demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

6.2 Other Gold Uses in Everyday Fashions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

6.3 Peak Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

6.4 Additional Factors Influencing Gold Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

6.5 Gold is a Hedge Against Financial Stress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

6.6 Investors are Pleased. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

6.7 Margin or Short Sellers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

6.8 Jewelry Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

6.9 Gold is Very Portable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

6.10 Central Banks and Teir Interest in Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48


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7.0 Investment Strategies for Gold Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

7.1 Financial Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

7.2 Leverage and Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

7.3 Popular Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

7.4 Investment Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

7.5 Fundamental Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

7.5 Gold Versus Stocks When it Comes to Investment . . . . . . . . . . . . . . . . . . . . . . . . . 56

7.6 echnical Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

8.0 Investment Vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

8.1 Bars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

8.2 Bullion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 658.3 Scrap Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

8.4 Coins. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66

8.5 Exchange-raded Products (EPs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

8.6 Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

8.7 Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

8.8 Gold Mutual Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

8.9 Derivatives, CFDs, and Spread Betting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

8.10 Gold Options and Futures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

8.11 Junior Gold Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

8.12 Mining Companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

9.0 Gold Price rends over the Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

9.1 Another Option for More People. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73

9.2 Te Different Financial Uses for Gold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

9.3 One Spike in Several Decades . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

9.4 Gold Price Movements in 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

9.5 Was 2011 a One Off Year? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77


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10.0 Gold Price Predictions for 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

10.1 European Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

10.2 Are the Banks a Good Option? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

10.3 What Else you Need to Know . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

10.4 Te $2000 Barrier May Fall . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

10.5 Long erm Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

10.6 Bad News Isnt Always Bad News . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

10.7 A Property Price Rise Comparison . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

10.8 Sell in a Rush . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83


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Te Ornate History of Gold


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1.0 Te Ornate History of Gold

Whether because of its intrinsic beauty, its rare nature or its unique physical properties, there is no question

that gold has set the standard for world financial markets since the beginning of recorded time. Imagine, if

you can, some of the very same gold that was traded along the Euphrates and igris rivers by members of the

earliest civilizations can still be seen today on display in museums around the world.

No one knows for sure who first discovered the shiny, yellow metal which would go on to delight and transfix

humans throughout the age but its usefulness goes with question. Gold has been used as a currency for centuries

for a few very good reasons. Early civilizations realized that the relative scarcity of the metal combined with its

easy identification and longevity made it a natural choice to use for commercial transactions.

In more recent times it has traditionally been used as a backup metal, with silver coins being those which are

placed into general circulation while the nations gold reserves are held in the central banks. Te idea behind

using gold reserves is that they protect the population from hyperinflation and the overall financial system

from abuse.

Te theory hasnt also been successful however, and throughout the history of gold use in the worlds economies

we have seen several attempts to set a gold standard which could be used to achieve all of the necessary

requirements. Wars and economic troubles have tested each of the systems which have been in place and by

the early 1970s the majority of the worlds currencies had moved from a gold standard onto a fiat basis, which

means that it is backed by the government rather than a commodity such as gold or silver.

Tis has left gold as a commodity which can be stored and traded and which remains an alternative to currencies

for investors and governments alike.

Te history of gold as both a portable currency and as a reserve is a long and interesting story which it is well

worth telling again. It covers some of mankinds greatest highs and most depressing lows and takes us from

Ancient China to the Industrial Revolution in Britain, the scenes of the worlds biggest wars, the 20th centurys

most acute financial crisis and much more.

1.1 Beginnings of the Gold rade

In the second millennium BC, citizens of ancient Mesopotamia (Egypt and Sumer - the area that is now Iraq)

were the first to produce more food than they could eat in the fertile land around the rivers through theiradvancements in irrigation of crops. Tey were also the first to create a trade economy where they could sell the

surplus in the major trade and commerce center of the places they lived. People from the mountains came to

trading locations with the products they pulled from their land, such as limestone, timber, silver, copper, and

gold. Tey exchanged these for desperately needed food items such as wheat and barley. Tey also obtained flax

through this system, which was woven into cloth for their apparel.


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Te proximity of the rivers and the ingenuity of the Mesopotamians meant they could carry goods in boats

to markets downstream. After inventing the wheel, they were also able to carry goods in wagons, which

gave them even more flexibility in bringing crops to buyers. oday, we use money to track the value of our

purchases, and our modern accounting methods rely on assignment of a price to everything that is bought

and sold. Mesopotamians had no such structure, as individuals had always been responsible for producing the

goods they needed on their own. Any trade was small scale, a direct agreement between the producer and the

person trading, which meant complex arrangements had to be made with a variety of products.

As the ancient economies grew, the barter system they had been using became difficult to manage. Contact

between traders was indirect, and the quantity of items being bought and sold was far greater than at any

other time in history. Scribes recorded business transactions on clay tablets, but the Mesopotamians needed to

simplify the trades in order to grow their business. It was at this moment in time that gold gained the critical

importance it still maintains today. A system of weighted gold ingots was developed to measure the value

of goods being traded. While the general population did not use gold ingots the way we use money today,

businesses relied on the ingots to account for items that entered into the market. Rulers and temples liked this

new accounting method, as they were better able to mandate taxes.

1.2 Te Early Gold Coin Ideals and Standards

In the 6th century BC, 610 BC according to some historians, actual gold coins that we would recognize today

were minted in Lydia (now Western urkey). Te invention is credited to King Croesus of that country. Te

coins were created from a combination of gold and silver known as electrum which was pulled from the

rivers. Te first coins had lions or bulls on one side, and official seals on the other. odays coins have kept

with similar traditions, usually displaying a powerful person on one side and an etching of places and symbols

of particular importance to the country on the other. Te first coins were created in several values, weighingfrom .55 troy ounces (17.2 grams) to .006 troy ounces (.2 grams). As the coins gained popularity for their

convenience and ease of use, they were more formally minted, and use became widespread.

Many wonder why gold was selected for the honor of becoming the currency of choice. It is hard to say for

sure, though it could be because it was easiest to manipulate, easiest to locate, or most attractive. In any case,

as gold gained recognition, other trade commodities became obsolete, which left gold and, to a lesser extent,

silver as the recognized method of exchange in early economies.

In faraway China, a similar transformation was taking place, with the minting of gold coins in approximately

600 BC, during the Zhou Dynasty. Te Chinese had long used a variety of coins in trade, such as Cowry shells,bronze pieces, spade shaped coins, and sword shaped coins, but with the first metal coins, all of these fell out

of favor. Round coins had either a square or a round hole in the middle, and they were valued by their weight.


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Before long, the ease of using gold coins for trade began to spread to other parts of the world, and other

countries quickly adopted the idea for their own economies. Greek city states became the next to transition

almost entirely to a coin-based system, made easy when their ruler, Philip II, acquired gold and silver mines

from which to obtain a precious metal supply. When his son, the man known as Alexander the Great today,

took over rule of the empire he added Persia to the areas under Greek control. As the Persians had a massive

gold treasure they collected from areas in Northern Afghanistan, Alexander then had control of an additional

22 tons (approximately 700,000 troy ounces) of gold.

Both rulers primarily relied on gold coin for military use, as they paid soldiers and obtained military supplies

with the easily transported metal. It was in Greece that the tradition of stamping lions and bulls on the face of

coins transitioned into the stamping of heads of kings.

Romans, too, saw the benefits of using gold coins to pay their armies, and they also elected to mint their

currency with an engraving of the emperors head on the front. Early Roman gold coins were called aureus,

and they weighed 7.3 grams or .23 troy ounces. A pound was made up of 45 aurei. It was the Romans that

minted large numbers of coins, which made them accessible for traders to use around the world. By some

estimates, there were hundreds of millions of coins minted in Rome between 200 AD and 400 AD. o give

an idea of the value of the currency, a single aureus could by 28.57 gallons (400 liters) of inexpensive wine, or

200 pounds (91 kilos) of flour. Over time, there evolved a need for single coins with less value, so the solidus

was introduced. Tis smaller coin weighed only 4.4 grams or .14 troy ounces.

When the Roman Empire fell just after 400 AD, the widespread minting and use of gold coins was interrupted

for nearly a thousand years. While there were some coins being minted in Constantinople by the Byzantine

emperors (known as the bezant or nomisma), the pervasive use that seen in Ancient Rome was no longer the

standard. It wasnt until Venice rose as a major economic power that its beautiful ducats, made of both silver

and gold, started the spread in Europe of coin as currency again. Resumption of minting began in a limitedmanner, because the discovery of new gold supplies was not nearly as common as it had once been. In some

economies, silver was the precious metal of choice for coinage, and Venice coins dated for the year 1081 only

contained 6 carats of gold.

African nations rich in gold mines tended not to export the precious metal to European countries. Instead, they

created their own coins after 700 AD. Te dinars were minted in Baghdad, ripoli, and Damascus, and they

were adorned with Arabic script in beautiful calligraphy. Because the coins were used for trade in the Islamic

Empire that was growing steadily, they had to respect Islamic law that did not permit people to be depicted.

Nations on the European peninsula started to trade regularly, and in large quantities. With African nationsbeginning in the year 1200, gold and silver coins were brought into the forefront of national economies

once again. Te merchants needed stores with which to track their goods, and coins provided a simple and

convenient way to do so. Sicily had a mint by 1231, and Genoa and Florence followed in 1252. By 1284,

Venice opened its own mint, cementing its place in the world as the primary market for gold. For the next


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500 years, Venetian ducats weighing .114 troy ounces (3.55 grams) gained popularity that first met, and then

surpassed the common use of Roman aurei. Possession of gold was a symbol of status, separating the rich and

powerful from the common folk. Before long, every major country was producing unique gold and silver

coins, including Britain, Spain, France, and Portugal.

Many suggest that travels to the New World were motivated by this gold fever, as the monarchs pursued new

sources of the precious metal. Shortly after the Americas were discovered, shipments of gold began travelingtheir way back to the nations that sponsored the journeys, and minting with American gold became common

over the course of the 1500s. Brazilian gold was the primary metal used in British coins by the 1690s, putting

Britain on an unofficial gold standard of currency.

1.3 Te Bank Note and Silver Currency Crisis of 17501870

As gold coin flowed through every major economy as a standard of trade, it outshone silver in its value on

the European continent. In 1717, Sir Isaac Newton, who headed the British mint, accidentally made the gold

standard official in Britain when he assigned it a specific price. Surprisingly, this standard stayed in effect until

1914, when World War I began.

Meanwhile, in the 1700s, markets in India and China preferred silver to gold, making it more lucrative

for merchants to send their silver to Asia. Tis worked for all involved, with just enough silver making it to

European countries to handle lesser silver coin minting and other uses. However, trade between Europe and

China came to an abrupt halt at the end of the century when war broke out between the two. China didnt

need much that Europe had to offer, so trade had been primarily one-way. Without China to supply silver to

European and US markets, silver coin production dwindled to almost nothing, and the use of paper money

bank notes gained in popularity.

1.4 England and the Gold Market

With the loss of Chinese silver imports, England scrambled to replace silver coin usage with an alternative.

Large silver coins were discontinued altogether, and smaller versions were created as tokens. Te transition to

a complete gold coinage system began in the early 1800s. Tus sovereigns, shillings, crowns, half-crowns, and

copper farthings became the money circulated in every British citizens day to day life. More than 40 million

shillings were minted between 1816 and 1820, which flooded the market and dramatically increased the ease

of trade.

However, some still preferred the lightweight portability of paper bank notes, so in 1833, when the Bank

of England expanded into regional branches, its notes became legal tender. Te government acted to assign

Bank of England Notes as the legal standard for paper currency in 1844 with the Bank Charter Act, and each


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of these maintained the gold standard as each was backed 100% by gold holdings. Tis formalized Britains

adoption of the gold standard.

1.5 United States and the Gold Market in the Early Days

Across the Atlantic ocean, the United States unofficially selected a silver standard in 1785. Tis became officialin 1792 with the Mint and Coinage Act. Tough intended as a silver standard, the US did not, in fact, require

that each dollar be backed by silver holdings. Instead, a ratio of gold to dollars was established, creating, in

effect, a bi-metallic standard. Both gold and silver coins were legal tender throughout the country, but by

1806, President Jefferson determined that the minting of both metals was unsustainable.

Te country was deeply in debt as a result of the Revolutionary War, so all silver government coins were

removed from circulation and only gold were used in an attempt to alleviate the problem. Te US needed to

be able to trade with England, which was only working with gold. Speculators began risking everything to find

gold deposits, sparking the famed California Gold Rush in 1849. Te 1857 suspension of all silver payments

by US banks set off a ripple effect that dramatically shook international financial markets.

1.6 Te Gold Rush

Te Independent reasury Act of 1848 was also one of the triggers for the California Gold Rush of the

following year. Over 300,000 people were drawn to the California area for the relatively short-lived Gold Rush

(1849-1855) and the once in a lifetime chance to make a fortune from nothing.

Te US reasury had moved onto only dealing with gold or silver coins but the relative overvaluing of silver

and the demand for gold meant that there was a need to find more gold. Following a well known economic

law known as Greshams law, stocks of overvalued silver began to enter the US while gold became ever scarcer.

Te crisis led to emergency measures such as making silver coins lighter and the ending of the use of foreign

coins as legal tender in the US. By 1861 the government had stopped payments in both gold and silver. Te

monetary instability which came after this decision had a huge impact on the nations economic well being and

it was a desire for a return to some sort of solid base which meant that the stage was set for the gold standard

to be introduced.

Japan and other international gold markets then moved onto the gold standard at the end of the 19th century,as it looked to enter in the financial markets of the Western world. Around this same time countries such as

India, the Philippines, Mexico and Siam moved on the gold standard, with most of them using either the

British or the US standard. In most cases they set their nations own silver coins against this gold standard.


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1.7 International Gold Markets

At the same time as the United States found an issue with the Revolutionary War debt, other countries also

found themselves with a problem. Silver became scarce in other places than just the US and major markets

chose to deal in gold alone. Some countries elected to attempt a bi-metallic standard such as France, for

example, that started producing both gold and silver francs. In the mid-1800s a number of new silver deposits

were discovered, and silver became much more readily available. Tis threw the value of silver into a steepdecline, making a silver standard difficult if not impossible to maintain.

Te stability of money was jeopardized during these growing pains, which required rapid, decisive action to

avoid the development of economic instability. New paper notes were restricted and laws were enacted to

designate the production of new notes as a government activity. Some economic depression resulted, so there

was an expanded need for credit, and in response, more large banks were chartered. With the need for a solid

financial platform getting critical for the sake of global economic health, the gold standard met with easy

acceptance by the late 1800s.

Gold rushes in Australia allowed an increase in gold production, followed by adoption of gold standards in

most major economic powers shortly thereafter. Both Australia and New Zealand mimicked the British gold

standard (Sovereigns), and Canada adopted a gold standard in 1853 using both Canadian coins and US Eagles.

Newfoundland followed in 1865, and Germany went to gold in 1873 with German Marks. Russia adopted the

gold Rouble, Austria produced Crowns, and Hungary had Florins as their primary form of currency. Frances

gold standard was based on gold Napoleons. Altogether, the worldwide gold coins produced totaled more than

418 million troy ounces before World War I.

1.8 Japan and the Gold MarketJapan trailed behind the European and American economies in changing to a gold standard, which led to

frustration as they attempted to trade in world markets. After victory in the Sino-Japanese War of 18941895,

fought between China and Japan over control of Korea, Japan finally had enough funds in reserve to adopt

a national gold standard. Tis made it possible to borrow money abroad in some situations, as well as begin

trading in earnest with the booming markets of the West.

Gold has been the currency of choice since the concept of currency was developed, and whenever a country

could return to using it as a currency, they did. Over the ages, it has held its importance in global financial

markets, used as a direct medium of trade or a store of value represented by fiat money. Te search for goldhas given rise to myths and legends that span centuries, and even today, though we no longer trade on a gold

standard, the precious metal has maintained its significance in every economy in the world.


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2012 Gold Investment Guide