Why Gold & Silver still shine

From Lydia’s coins to the modern era. Gold & silver have stood the test of time. They will continue to do so

Gold and Silver have (pardon the pun in advance) been the Bedrock(s) of the monetary system for a long time. From the Mesoamericans to the modern-day Americans, they have played a key role in shaping the world.

This journey through time will start with a very basic overview of gold and silver before heading back to Mesoamerica. There are some slight overlaps in the time periods. Our apologies for this but we felt that this was easier to do rather than jump back and forth continuously between various empires and various eras.

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Overview

When you think of Gold and Silver then you probably think of money, jewellery and likely a store of value/wealth.

They have been synonymous with wealth and value for millennia. They are scarce, they are durable, they are fungible, they don’t corrode, they are a symbol of wealth and power and, most importantly, they are money.

Ancient Beginnings: The Dawn of Metallic Money (3000 BC – 600 BC)

The Mesopotamians knew good value when they saw it. They are recorded as having the earliest known use of gold and silver. They used both metals for trade and jewellery. The trading in gold was normally done in the form of ingots rather than coins. That being said, they are credited with creating the first ‘unit of weight’ for silver, called a shekel.

A shekel is one of the earliest standardises measures of value.

It wasn’t just the Mesopotamians that were using gold and silver though. The Egyptians used plenty of gold in religious artefacts and also as a medium of exchange amongst the elites.

The Kingdom of Lydia (modern-day Turkey) is credited with creating the first coins. This was around 600 BC. The coins were based on electrums (which is a natural alloy of gold and silver). Furthermore, they were stamped with official marks and this was done in order to ensure their weight and purity.

The idea of this type of coinage and system spread across the seas and managed to influence the coinage of both the Persians and Greeks.

The Classical Era: Empires and Bimetallic Systems (600 BC – 500 AD)

The knowledge and sophistication of gold and silver as money grew over time.

Bimetallic systems became common although they were also quite challenging to maintain, especially in terms of determining a stable exchange rate. This created all sorts of headaches for monarchies and merchants alike.

The Greek city states minted silver drachmas. These were very widely accepted in trade due to their reliability. The potent war nature of some of the city-states at the time probably helped to ensure that they were used consistently.

The Persians issued gold darics and silver sigloi. Although used in trade, the darics and sigloi were more often associated with wealth and often had the images of their rulers in order to asset authority over the masses.

Rome is synonymous with the silver denarii and the gold aurei. This was mentioned in a recent article called:

Unfortunately the Romans succumbed to inflation. This was due to the continuous war like nature of the empire in general, but more importantly because they started to alter the metal content in the coins. This debasement caused wild inflation and ultimately ended up with Diocletian’s famous ‘Edict on Maximum Prices’.

More importantly, this debasement also helped to highlight the risks of trust with regards to tampering with the money system. Once trust goes out of the window then all hell could break loose. It has done before and it will do so again.

This is why the psychology of money is imperative to understand. Many mistakes have been made with regards to the monetary system and many mistakes will likely be made moving forwards.

It wasn’t all doom and gloom for the Romans thought. This is because the solidus, a gold coin introduced by Constantine in the 4th century, became a standard for centuries, even influencing Byzantine coinage up until the fall of Constantinople in 1453.

The Medieval World: Gold, Silver, and Trade Routes (500 AD – 1500 AD)

As we finished the last section with the Byzantines, let’s start with them here. Constantine was instrumental in Byzantine coinage. One of the most iconic emperors, his name bears the city of Constantinople (modern day Istanbul) and the solidus (or bezant as it was sometimes called) became the first true global standard.

It was accepted throughout Asia and Europe.

The Muslims were not too far behind though and the Islamic caliphates minted gold dinars and silver dirhams. Due to their connections with the Silk Road, these coins became to dominate trade in that area at the time.

The coins were prized for their consistency and helped to garner trust in the times of long-distance trade.

It is interesting to note that there was an abundance of gold in Asia at this time but not so in Europe, where gold was scarce up until the mid-13th Century. Silver pennies dominated Europe up until this time.

The Italian city-states were really at the forefront of bringing back gold. Mainly through trade but also through ingenuity. The gold florin (1252 - 1533) and the ducat of Venice became benchmarks of quality and were widely used in international trade. The Venetians were one of the best sea-faring civilizations to ever exist.

Back to Asia and we head over to China, where despite issuing the very first ever paper currency (fail), they used silver ingots called sycee (sometimes gold too) before heading over to a silver-based money system under the Yuan dynasty.

The other side of the Himalayas saw silver rupees thanks to the Indians. These rupees were later standardised under the Mughal Empire and became a staple in trade in South Asia.

The Middle Ages saw gold and silver currencies adapt to fragmented political landscapes and expanding trade networks. While Europe faced metal shortages, the Islamic world and Asia thrived on robust coinage systems.

The Age of Exploration and Colonization (1492 AD –1800 AD)

Arguably the biggest driver for Europe throughout this period was the Spanish ‘‘discovery’’ (and we’re using that term very loosely) of the Americas in 1492. The subsequent colonisation led to an influx of both gold and silver like never seen before.

From Guanajuato (Mexico) down to Potosi (Bolivia), the silver mines flowed, flowed and flowed some more. The Spanish Silver Dollar (otherwise known as a ‘piece of eight/Real de a ocho’) became the world’s first true ‘global’ money as it became accepted in the Americas, Europe and Asia.

Source

The Chinese were still rolling with their silver system and they also saw a major influx of Spanish silver into their system, which in turn helped to fuel global trade.

War has always been prominent one way or another and it seemed as though the massive Spanish silver hoards were at the epicentre of wars and trade. The Spanish created an abundance of inflation due to the importation of the sheer amount of gold and silver.

France and England continually attacked Spanish ships and were frequently at war with one another throughout this period. Gold and Silver helped to finance a LOT of war.

That being said, world trade was growing and mercantilism led to numerous policies that looked upon the storing of bullion. This in turn helped to finance the aforementioned wards.

England and France both used gold and silver and had loose bimetallic systems. However, history was to repeat itself and the fluctuating market ratios created instability. England accidentally moved to a de facto gold standard in the 18th Century when Sir Isaac Newton (yes….that Sir Isaac Newton) accidentally valued silver too low in relation to gold, thus causing silver coins to exit circulation.

The Gold Standard Era (1800 AD – 1933 AD)

In Europe, The Napoleonic Wars saw Britain come off of this accidental gold standard. Although France continued with its bimetallism, it was Britain that officially adopted a gold standard in 1816. This was 1 year after the Napoleonic Wars had finished.

I wrote about this in more depth in The Golden Era - The British Empire & Sound Money between 1816 - 1914.

The industrial revolution and the further opening up of trade helped to spread the gold standard throughout the world. As a result of this, silver and silver standards started to wane.

In the USA, the Coinage Act of 1873 basically demonetized silver. Cue uproar and the ‘Crime of 1873’ but this move ultimately put the USA on a gold standard by removing silver from the equation.

Germany, France and the USA all adopted the gold standard but continental tensions (and more than likely many other contributing factors too) saw World War I start in 1914.

This severely strained gold reserves as a result.

Most European countries flip flopped between going back onto a gold standard i.e. Britain went back on one in 1925 but then came back off of it in 1933.

The USA had come to the financial rescue of many countries in World War I by supplying war materials in exchange for gold. On 5th April 1933, via Executive Order 6102, the USA officially abandoned the gold standard, thus marking an end of an era.

The aftermath of World War I along with the subsequent penalisation of Germany led to hyperinflation in the Weimar Republic.

You’re probably very familiar with the images of people walking down the road with wheelbarrows of currency. Along with the various stories of people rushing out to buy what they could at the time they received their currency, purely because the prices were changing minute by minute.

Hyperinflation/currency destruction as well as other actions meant that World War II came about and thus saw the end of the old monetary system.

It was a slightly different story over in Latin America though. Argentina was an incredibly innovative and wealthy country in the late 19th and early 20th centuries. Argentina underwent a currency reform in 1881 which resulted in a bimetallic standard being introduced and thus formalized in 1883.

The Modern Era: From Bretton Woods to Fiat Currencies (1944 AD – ???)

Post-World War II, the role of gold and silver diminished. The Bretton Woods agreement (1944 - 1971) effectively pegged global currencies to the US dollar at $35 an ounce whilst silver was relatively absent from this system.

The recurring theme of war and inflation meant that the Nixon Shock happened in 1971. This decoupled the US dollar from gold and really saw the start of the fiat currency system that we are familiar with today.

This system looks like it is coming to an end.

Despite their diminished role from 1944 onwards, gold and silver have retained their allure as more and more people are studying monetary history and realising how these metals have played key roles over the previous centuries.

Overall economic uncertainty/war and the devaluation of the multitude of fiat currencies have meant that we have seen an increase in the price of gold (devaluation and the price increases are directly correlated).

Silver has its market manipulation issues but will no doubt break through that moving forwards.

Gold and Silver have always been (and will always be) true money.

Could a new BRICS sound money system be on the cards?

Summary

Sound money systems work until they don’t.

Normally some form of war or event leads to rabid inflation and thus puts strains on the current money/currency system. Or vice versa, where the system is strained and then people go to war as a result!

This has happened from the Greeks to the Romans to the Tudors and all the way up to the present day.

War is inflationary and over expansion of the supply adds further fuel to the fire.

Who knows what will happen next but it is likely that the world goes back onto some form of gold standard as a result of being burnt out through war.

70% off of monthly and annual subscriptions for 12 months

To celebrate 4th July and the long weekend that comes with it, I’m offering the biggest discount that has ever been offered on CC.

You can get 70% off of monthly and annual subscriptions for 12 months by using the button below.

For this you get access to all the market newsletters, early access to all expert podcasts and full access to the archive.

This works out at $6.30 a month on the monthly subscription or just $48 for the year ($4 a month) if you use the annual subscription.

Valid until Tuesday 8th July.

Thank you in advance for becoming a paid subscriber and have a great weekend!

CC