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. While trading in gold likely began at the time when it was first used for ornamentation, the global gold trade took many centuries to develop. By 1300 the goldsmiths in London had worked to define the value and quality of gold through hallmarking, but the shortage of gold from European mines restricted its circulation as coinage and pushed exploration further afield