Page Index
Introduction
Uses of Gold 
Gold Pricing
The Gold Standard

Introduction

The soft lustrous metal known as gold (symbol Au) is the most malleable and ductile element. Throughout the ages, gold's natural properties have allowed it to be used as a monetary standard, as well as for decoration, industrial and medical/dental purposes.

The way gold is distributed throughout the world suggests that the metal was carried toward the earth's surface from great depths, often along with other metals, within molten rock. Once it cooled, the gold content in the molten rock was spread through such great volume of rock that much of the world's gold is found in small, often microscopic particles.

More than half of the world's total gold production is done through vein mining (also called "lode" mining). The gold may be of microscopic particle size, in nuggets or sheets, or in combination with other elements. In the latter case, the gold must be liberated by extraction and refining.

Once mined, gold ore must be crushed and reduced to a powdery substance from which it may be extracted by gravity separation and then by cyanidation. The addition of metallic zinc to the cyanide solutions causes metallic gold to precipitate. This precipitate is refined by smelting, and the purification is completed by electrolysis (the passing of an electrical current through the substance).

In addition to vein mining, gold is also recovered as a byproduct of copper, lead and zinc production and by what's known as placer mining.

In placer mining, freely occurring gold is found in deposits of sand and gravel from which it can be easily separated by simple physical means. The sand and gravel are suspended in moving water; the much heavier metal sinks to the bottom and is separated by hand. Panning, use of a sluice box (see photo at left, early 1850s), hydraulic mining, and dredging are all placer recovery methods.

For detailed information on gold, visit The Gold Institute or the World Gold Council.

Uses of Gold

Industrial Uses
Its high electrical conductivity and resistance to corrosion make gold important in the manufacture of components used in a wide variety of electronic products and equipment. These include computers, telephones and telephone jacks, power wheelchairs, airbags, aircraft engines, telescopes, televisions and VCRs.

Because gold is chemically stable, it is employed in the manufacture of bearings used in corrosive atmospheres. It's also plated on surfaces exposed to corrosive fluids or vapors. Gold's reflectivity allows it to serve as a shield to protect spacecraft and satellites from solar radiation.

Dentistry and Medicine
Gold's lack of toxicity and its compatibility with living systems make it indispensable in both dentistry and medicine.

Dentists use gold in the form of alloys to make crowns, bridges, inlays, dentures and even braces.

Because gold is biologically inactive, it has become a vital tool in medical research. For example, tiny gold particles have been coupled with DNA in laboratory experiments. The results have produced new microscopic structures that open a range of research, treatment and diagnostic possibilities in fields such as biochemistry, genetics and medicine.

Other medical uses of gold include the direct treatment of rheumatoid arthritis and other diseases, and the manufacture of ion lasers whose interior surfaces are coated with gold to control the beam's focus.

Jewellery  and Decorative Arts
Gold was being made into decorative ornaments as early as 3000 BC, and throughout the ages, it has been prized for its great beauty. Gold is the most malleable element, and is thus easily worked into jewelry and decoration by hammering and other goldsmithing techniques.

Gold Pricing

Each day at 10:30 a.m. and 3:00 p.m. in the London offices of N.M. Rothschild & Sons Ltd., five representatives from bullion houses talk on their phones for about ten minutes and then lower tiny flags on their desks. The lowering of the flags means they have reached agreement and in this way the London gold fixing is set, giving the market a snapshot of the spot price of gold at a particular time. Since 1919, this exact ceremony has been performed in the same place and with virtually the same firms participating.

Here's how it works: At each meeting representatives of five international banking houses meet face to face at Rothschild to trade for gold bars that must weigh about 400 ounces and conform to specifications set down by the London Bullion Market.

The meeting's chairman suggests an opening price that the representatives report by phone to their dealing rooms. The chairman then asks who wants to buy and who wants to sell and how many 400-ounce bars they want to trade. If the quantities don't balance at the opening price, the chairman suggests a higher or lower one until a balance is reached. Then he announces the price to be fixed.

At any point during the proceedings, the dealing rooms can alter instructions to their representatives, who then signal this change by raising their flags. The chairman can't declare the price fixed unless all the flags are down. At this point the agreed price represents the price at which all supplies can be absorbed. Since 1968, the gold price has been quoted in U.S. dollars. While several local markets also have their own fixing, the London gold market enjoys the position of being the worldwide benchmark.

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The Gold Standard

The gold standard was an international monetary system in which the value of a currency was defined in terms of a fixed quantity of gold. Paper currency was directly convertible into gold and, because a government could only print money based on how much gold it held, the system was supposed to discipline the economy.

Great Britain was the first to adopt the gold standard in 1821. However, the rest of Europe remained on a silver standard until the 1870s when the great flow of gold from the United States and Australia made it possible to circulate sufficient gold bullion.

This system dominated internationally between 1870 and 1914. By the end of World War I, however, the United States was the only western country in which paper money was still convertible into gold coins.

By the 1920s, countries were allowed to keep part of their reserves in key world currencies that could still be exchanged for gold. Howevert, this attempt to reintroduce the gold standard failed when the U.S. prevented private holding and export of gold in March 1933.

The gold standard forces an inflexibility in exchange rates, because increases in the money supply are directly tied to the amount of gold held in national coffers. By the late 1950s, U.S. dollars had almost entirely replaced gold in international transactions. While most countries continued to use it as a reserve asset, the importance of gold decreased until, by the 1970s, it was only one of several means of payment. The dollar-gold exchange standard at the Federal Reserve in the U.S. lasted until 1971.