gold


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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in the UK and many other countries, gold coins formed the basis of the domestic MONEY SUPPLY, but gold has now been replaced by banknotes and brass and nickel coins as the cash component of the money supply.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 ?
I tell you-all boys they ain't never been gold like that in the blower before.
If I'm right, flour'll balance gold on the scales this winter.
Tomorrow your five gold pieces will be two thousand
In this field you dig a hole and in the hole you bury a gold piece.
Hereupon the captain and all the crew set to work, with iron rakes and great hooks and lines, fishing for gold and silver at the bottom of the sea.
But when the Ambassadors had been there a day or two, and saw so great abundance of gold so lightly esteemed, yea, in no less reproach than it was with them in honour; and, besides that, more gold in the chains and gyves of one fugitive bondman, than all the costly ornaments of their three was worth; then began a-bate their courage, and for very shame laid away all that gorgeous array whereof they were so proud; and especially when they had talked familiarly with the Utopians, and had learned all their fashions and opinions.
His first pan of the morning washed out over two dollars in coarse gold.
His voice and manner were so terrific that Alnaschar had not strength to reply, and allowed his gold to be taken from him, and even sabre cuts to be inflicted on him without making any resistance.
I was in the ceiling of a vault, heaps of gold were dimly visible in the faint light.
So, not to go into too many details," went on the professor, "I'll just give you a brief outline of this story of the idol of gold.
Over the gable were "two golden apples, in which were two carbuncles," so that the gold might shine by day and the carbuncles by night.
The lure of adventure may have been quite as powerful a factor in urging Tarzan of the Apes to undertake the journey as the lure of gold, but the lure of gold was there, too, for he had learned among civilized men something of the miracles that may be wrought by the possessor of the magic yellow metal.