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Using an inter-disciplinary and global approach this book examines the different roles gold played in the international economy from the late 19th century until today. It gives a complete and comprehensive overview of the many facets of the global gold market's organization from the extraction of this precious metal to its consumption.



Introduction: Towards a Global History of Gold

‘Commodities are back in the news’ (Hazareesingh and Curry-Machado 2009, p. 1). This is the opening editorial statement in the 2009 Journal of Global History, which insists on the ‘renewed importance of commodities in the global political landscape of the early twenty-first century’.1 While the authors are mainly referring here to the relentless struggle being waged between the great powers of the United States, China and Russia, regarding access to and control of oil, gas and other primary resources that are highly strategic for modern industrial societies at the start of the 21st century — and to the profound historic echoes of this rush for raw materials — this observation is also applicable as far as gold is concerned. Although gold cannot be considered ‘a vital economic good’, it has played, and still does play, a pivotal role in the world economy, mainly due to its dual function: now monetary standard, now traded commodity. Gold is unlike other commodities. While subject to strong worldwide demand — from central banks, industry, the jewellery and art trades on the one hand, and its stockpiling in bars, ingots or coins for private hoarding, speculation and investment on the other — this precious metal has played a unique, complex and changing role in international monetary systems since the gradual setting up of the classical gold standard at the end of the 19th century, and throughout the 20th.
Sandra Bott

1. The Global Gold Market and the International Monetary System

For most of the history of civilization, gold has played an enduring role as a store of value, means of exchange and unit of account. These are the three properties that traditionally define ‘money’, and indeed gold has periodically been at the core of national and international monetary systems. Gold has acted most consistently as a store of value, and this has generated a highly developed global market in gold and in gold derivative products. Gold’s physical attributes, scarcity and geographic distribution have combined to ensure that it remains a precious and sought-after mineral. Physically, gold is malleable, heavy and robust, features which make it suitable for easy storage, transport and division into a range of standard denominations. Moreover, scarcity and the cost of mining or extracting gold sustains its value over the long term, although there have been periods of wild fluctuations in relative gold prices that mean that it is best accumulated as part of a diversified portfolio of assets rather than a single store of value. This chapter argues that the monetary and commodity roles of gold have been closely intertwined historically, with profound effects on the global gold market.
Catherine R. Schenk

2. Gold in Latin America: What the Gold Standard Meant in Brazil and Mexico at the Beginning of the 20th Century

This chapter seems a bit of an outlier among these studies of the world gold market, because it discusses gold in two major Latin American countries, Brazil and Mexico, which in the past were often considered underdeveloped or marginal to the centre of the world economy.1 Moreover, it looks at gold not as a commodity but rather as an idea that undergirded the concept of the gold standard. It explores the appeal of the gold standard even for countries that produced little gold. Gold was not just a precious metal. It was also a discourse, a tradition, a marker of modernity and a sign of cosmopolitan (European?) urbanity. In Brazil and Mexico, the battle over the gold standard was fought on internal political issues and was shaped by pressures from the world economy and foreign bankers. A series of ideological directives and reactions to unexpected crises brought two countries with very different 19th century currency experiences to convergence in 1905 and 1906. This is the story of how that came about.
Steven Topik

3. The Bank of England as the World Gold Market Maker during the Classical Gold Standard Era, 1889–1910

Although textbook accounts of the classical gold standard understandably simplify the illustration of it by arguing that it featured a fixed price of gold, connoisseurs know that such a claim is not completely accurate: under the aegis of this international monetary system the price of gold did actually happen to vary, albeit extremely narrowly. This was not only due to transaction costs: the practice of slightly modifying the official price of gold from time to time was in fact a rather common one, as it was followed by many central banks — including the Bank of England itself, the institution that stood at the very centre of the whole system (Sayers 1953, 1976). Because the effect of such practices was to change the ‘gold points’ (the band within which the exchange rate was allowed to fluctuate without entailing international gold flows), they have generally been seen as violations of the (alleged) rules of the gold standard: hence, they have been dubbed with the pejorative name of gold devices. How should we interpret the fact that central banks departed so far from the standard theory of the workings of a monometallic system, which was nonetheless already well established at the time (see, for example, Goschen 1864)? Scholars have generally answered that policymakers’ unwillingness to comply with the ‘rules of the game’ was a sort of relic of bullionist sentiments tied to a certain reluctance to implement the ‘proper’ strategy (that is, moving interest rates: see e.g. Sayers 1953, 1976; Scammell 1965; Contamin 2003), if not to a certain sympathy towards some forms of capital controls aimed at hindering international arbitrage (see e.g. Gallarotti 1995, pp. 47–9).
Stefano Ugolini

4. Gold Refining in London: The End of the Rainbow, 1919–22

Plans revealed in 1919 for the establishment of a native gold refinery in South Africa marked a turning point in Britain’s relationship with Transvaal gold. Until that time, producers had transported the entire output of raw gold from the Cape to the London refining houses for treatment prior to being sold on the world’s premier gold market. But in June 1922 the new Rand Refinery became fully operational, and raw gold was diverted to the new facility instead. The refining business in London dried up overnight, with a profound and lasting effect on the industry.
Michele Blagg

5. South African Gold at the Heart of the Competition between the Zurich and London Gold Markets at a Time of Global Regulation, 1945–68

Thanks to a regulatory framework conducive to its international financial activities, Zurich successfully developed its role in the global gold market1 during the 25 years following World War II. The growing importance of the major Swiss banks in the gold market took place in a context of global restrictions regarding monetary gold transactions in the 1950s, and increasing international monetary instability in the turbulent 1960s.
Sandra Bott

6. The Hong Kong Gold Market during the 1960s: Local and Global Effects

Historically, gold has embodied particular characteristics that make it come close to the classic definition of money; a store of value, a means of exchange and a unit of account. These properties are reinforced by its physical properties, particularly at times when paper or fiat money is discredited. Gold cannot be manufactured, it is malleable and easily divided, its chemical properties are well defined so copying is difficult, and its high weight-to-volume ratio means that its small bulk is convenient for transactions and transport. Gold functions as a safe haven or hedge against uncertainties about the future value of fiat currencies, even when inflationary expectations or political risk tend to influence short-term fluctuations in the demand for gold. The combination of gold’s physical properties and its store-of-value function encourages its use in ornaments and jewellery that can, in emergency, be sold. But since the supply of gold is relatively inelastic, such fluctuations in sentiment are quickly translated into price volatility. This was particularly evident during the 1970s and early 1980s global inflation and the late 2000s global financial crisis, when the price of gold soared due to instability in the international financial and monetary markets. As the rate of price increase rises, the capital gains from gold also increase, attracting speculators to reinforce this trend. Unlike most other forms of security, however, gold does not generate a yield and its capital gains are only captured when it is sold. Historically, speculative bubbles in gold have abruptly burst, leaving capital losses.
Catherine R. Schenk

7. Gold as a Diplomatic Tool: How the Threat of Gold Purchases Worked as Leverage in International Monetary Relations, 1960–68

During the 1960s the acquisition of gold became a political tool in the hands of European surplus countries. The possibility that the two largest dollar holders, the Federal Republic of Germany (FRG) and France, might convert all of their dollar reserves into gold and thus provoke the breakdown of the Bretton Woods system was hotly debated in the United States administration, in the press, and in Congress. Whilst Bonn agreed to cooperate with the US monetary authorities in exchange for tangible advantages, this was not the case with Paris; in fact, the French government was largely responsible for US anguish over the gold question -in three ways: by publicly contributing to harsh criticism of the dollar exchange system, by converting a large part of its dollar reserves into US gold, and by allowing the fear to persist that it might use its entire dollar holdings to purchase gold or incite the other Common Market countries to do so.
Janick Marina Schaufelbuehl

8. Market Status/Status Markets: The London Gold Fixing in the Bretton Woods Era

Five men met this morning for 27 minutes and told the world the price of gold here. They’ve been doing it for years, they said. And it didn’t matter that the world gold market was in a state of flux, rising from the United States peg — $35 an ounce — all the way to $41 an ounce in yesterday’s feverish trading. The five men, impeccably attired in dull gray and black, assembled at Rothschild’s, around an austere table in the financial district.
Rachel Harvey


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