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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in the UK and many other countries, gold coins formed the basis of the domestic MONEY SUPPLY, but gold has now been replaced by banknotes and brass and nickel coins as the cash component of the money supply.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 ?
In order to make the time pass away more pleasantly during the voyage, the heroes talked about the Golden Fleece.
There was no possibility of making any resistance; and the fifty heroic Argonauts might all have been killed or wounded by a flock of troublesome birds, without ever setting eyes on the Golden Fleece, if Jason had not thought of asking the advice of the oaken image.
Since that time, Phrixus had married the king's daughter; and the two young princes had been born and brought up at Colchis, and had spent their play-days in the outskirts of the grove, in the center of which the Golden Fleece was hanging upon a tree.
At the same time, however, they spoke as if it were very doubtful whether Jason would succeed in getting the Golden Fleece.
At all events, turn back who may, I will never see Greece again, unless I carry with me the Golden Fleece.
King Pelias, who sits on my father's throne (to which he has no more right than to the one on which your excellent majesty is now seated), has engaged to come down from it, and to give me his crown and sceptre, provided I bring him the Golden Fleece.
When the King saw how pale and sad the gentle face had grown, how thin her robe, and weak her wings, and yet how lovingly the golden shadows fell around her and brightened as they lay upon the wand, which, guided by patient love, had made his once desolate home so bright, he could not be cruel to the one who had done so much for him, and in kindly tone he said,--
Meanwhile the golden light had faded from the garden, the flowers bowed their heads, and all was dark and cold as when the gentle Fairy came.
Far as eye could reach were tall green trees whose drooping boughs made graceful arches, through which the golden light shone softly, making bright shadows on the deep green moss below, where the fairest flowers waved in the cool wind, and sang, in their low, sweet voices, how beautiful is Love.
Doves with gentle eyes cooed among the green leaves, snow-white clouds floated in the sunny shy, and the golden light, brighter than before, shone softly down.
Brighter grew the golden light, gayer sang the birds, and the harmonious voices of grateful flowers, sounding over the earth, carried new joy to all their gentle kindred.
Brighter shone the golden shadows; On the cool wind softly came The low, sweet tones of happy flowers, Singing little Violet's name.