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Gold

A particularly valuable precious metal. Gold is an element with the atomic number 79. It is used for jewelry, electronics and for other purposes. Historically, gold was used in many cultures as the basis for currency, but this is no longer the case. Investments in gold are often used as a hedge against inflation because it tends to maintain its value over time.

gold

a mineral that is used both as an industrial base metal and for ornamental purposes, and is held by governments as part of their stock of INTERNATIONAL RESERVE assets in order to finance balance of payments deficits. Formerly, in the UK and many other countries, gold coins formed the basis of the domestic MONEY SUPPLY, but gold has now been replaced by banknotes and brass and nickel coins as the cash component of the money supply. See BULLION MARKET, WORLD GOLD COUNCIL.

gold

a monetary ASSET that is held by countries as part of their INTERNATIONAL RESERVES and used to finance BALANCE OF PAYMENTS deficits.

Formerly, many countries operated a GOLD STANDARD system under which gold was used as the basis of a country's domestic MONEY SUPPLY as well as being used to finance payments deficits. Gradually, however, the ‘pure’ gold standard gave way to domestic monetary systems based on paper money and other metallic coins and, internationally, the gold-exchange standard in which foreign currencies such as sterling and the American dollar were used alongside gold as reserve assets.

In 1935 the price of gold was ‘fixed’ at $35 per fine ounce by the USA, Britain and France as part of a monetary pact between the three countries. This price was then ‘officially’ adopted by member countries of the INTERNATIONAL MONETARY FUND on its formation in 1947; gold was used as the NUMERAIRE of the Fund's fixed exchange-rate system in setting par values for members’ currencies, and members were required to pay one quarter of their ‘quota subscriptions to the Fund in gold. Gold continued to serve as the linchpin of the IMF system, and its ‘official’ price remained pegged at $35 per ounce, down to 1971, when the Fund's fixed exchange-rate system gave way to floating exchange rates. Countries had, however, found it increasingly difficult to hold the price of gold at the $35 per ounce level as world demand for gold as an industrial metal and for ornamental purposes continued to expand. In 1961 a ‘gold pool’ was set up to regulate dealings in the metal, but in 1968 Fund members bowed to the inevitable and a ‘two-tier’ price structure was established; gold continued to be priced at $35 per ounce for ‘official’ transactions between countries’ central banks and the Fund, while the ‘free’ market price of gold was left to be determined by market forces.

In 1972, gold was dropped as the numeraire of the Fund and replaced by the SPECIAL DRAWING RIGHT unit, the Fund's existing gold holdings were sold off, and members were required to subscribe their quotas in a non-gold form. Outside the Fund, many countries have sold off part of their gold reserves, with the UK being particularly active in 1999, having taken the decision to reduce its gold holdings to around 8% of its total reserves. Overall, gold accounts for only some 0.3% of total international reserves. The market price of gold has fallen substantially over the past decade. In 1989 the price of gold averaged around $850 per ounce. Following UK gold sales in 1999, the price of gold at one point fell as low as $250 per ounce. However, despite the determination of the USA and a number of other major gold holders to put a moratorium on gold sales, the price of gold has remained depressed - currently (April 2005), it is around $430 per ounce.

The attractiveness of gold as a reserve asset is underpinned by the fact that, unlike national paper currencies (which are intrinsically worthless), it has a value in exchange as a commodity related to its use as an industrial base metal and for ornamental purposes. Gold holdings, however, suffer from the disadvantage that, compared with other assets such as STOCKS and SHARES, they yield no interest return.

References in classic literature ?
The most beautiful Maiden entrances Above wonderfully there, Her beautiful golden attire glances, She combs her golden hair.
With hot heart I took the green winding path, and presently came the little grassy glade, and the bubbling crystal well, and the hut of wattled boughs, and, looking through the open door of the hut, I saw a lovely girl lying asleep in her golden hair.
These are the Talking Bird, the Singing Tree, and the Golden Water.
Then the Crab gave her a golden rod, and said, 'Go and strike with this rod three times upon the ground on the place which the King showed you, and to-morrow morning the wall will be there.
It was the archer's contest for the golden arrow, and twenty men stepped forth to shoot.
First there marched four officers of the jeddak's Guard bearing a huge salver on which reposed, upon a cushion of scarlet silk, a great golden chain with a collar and padlock at each end.
Goddess in a golden hall, Fairest maids around her gleam, Wine-fumes of the festival Daily waft her into dream.
And with tears falling thick and fast upon their tender leaves, Violet laid the wreath at his feet, while the golden light grew ever brighter as it fell upon the little form so humbly kneeling there.
He showed the golden links of the great chain that intertwined them with an angelic kindred; he brought out the hidden traits of a celestial birth that made them worthy of such kin.
I would send such a man," said he, "in quest of the Golden Fleece
Then she noticed Dorothy's Golden Cap, and said, "Why don't you use the charm of the Cap, and call the Winged Monkeys to you?
A certain king had a beautiful garden, and in the garden stood a tree which bore golden apples.