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Gold Information

How Gold is made and how it got to our planet

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A striking artifact discovered in Panama, dated 700-1000 CE. "Winged Pendant, Gran Coclé," credit: Gilcrease Museum
A striking artifact discovered in Panama, dated 700-1000 CE. “Winged Pendant, Gran Coclé,” credit: Gilcrease Museum

Revered for its aesthetic and metallurgical properties for thousands of years, gold is still one of the most sought after precious metals. There’s no question gold has played a unique role for humanity, for better or for worse. Today, we’ll explore the fascinating science behind the origin of gold atoms and some theories that seek to explain how the prized element got to where it is today, here on Earth.


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Why Gold is important

From what are now Israeli hills during the Copper Age to the Bulgarian Varna Necropolis in the 4th millennium, from the Egyptian pharaohs to the Spanish conquistadors, the allure of gold – its powerful effect on us – has been consistent and unmistakable. In fact, the Egyptians called gold “the breath of God”. And it’s not just the ancients that held gold in high esteem.

To display his imperial glory, Napoleon gilded Paris in gold, while even more recently Hitler sought to control all of Europe’s gold as support for his “1000-year Reich.” What myths made gold such a prized commodity and what factual properties still support it as a precious metal to this very day? Gold nuggets

Gold nuggets

Credit: Sick Chirpse

First and foremost, what makes a precious metal is its rarity. Rarer than silver or copper, two other ores that have been mined since antiquity, its value was proportionately larger. Second, gold has fantastic properties like it does not tarnish, is very easy to work, can be drawn into wire, can be hammered into thin sheets, alloys with many other metals, can be melted and cast into highly detailed shapes, has a wonderful color and a brilliant luster. All of these properties could be harnessed since ancient times, as today, just by heating gold nuggets at high temperatures and using simple tools like hammers or molds.

In short, gold is very memorable, so it shouldn’t come as a surprise that its main use is in jewelry.

Since time immemorial the noble metal’s resplendent luster allows it to be designed into the world’s most coveted and exquisite jewelry — fit for queens or kings. Today, most of the gold that is newly mined or recycled is used in the manufacture of jewelry. About 78% of the gold that’s available, as oppossed to stored, each year is used for this purpose.

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Because gold is highly valued and in very limited supply it has long been used as a medium of exchange or money. The first known use of gold in transactions dates back over 6000 years.

Early transactions were done using pieces of gold or pieces of silver. The rarity, usefulness, and desirability of gold make it a substance of long-term value.

The first gold coins were minted under the order of King Croesus of Lydia (a region of present-day Turkey) in about 560 BC. Gold coins were commonly used in transactions up through the early 1900s when paper currency became a more common form of exchange. The United States once used a “gold standard” and maintained a stockpile of gold to back every dollar in circulation. Under this gold standard, any person could present paper currency to the government and demand in exchange an equal value of gold.

Possibly gold’s greatest use to mankind didn’t become evident until early last century, when its fantastic electrical conductivity properties came to light. Solid state electronic devices use very low voltages and currents which are easily interrupted by corrosion or tarnish at the contact points. Gold is the highly efficient conductor that can carry these tiny currents and remain free of corrosion, which is why electronics made using gold are highly reliable. A small amount of gold is used in almost every sophisticated electronic device. This includes: cell phones, calculators, personal digital assistants, global positioning system units and other small electronic devices.

Facts about gold

The atomic number of gold, which means there are 79 protons in the nucleus of every atom of gold.
One ounce of gold can be stretched to a length of 50 miles; the resulting wire would be just five microns wide.
One ounce of pure gold could be hammered into a single sheet nine metres square.
Over 90 percent of the world’s gold has been mined since the California Gold Rush.
Julius Caesar gave two hundred gold coins to each of his soldiers from the spoils of war in defeating Gaul.
Fort Knox holds 4,600 tonnes of gold.
And the US Federal Reserve holds 6,200.

The temperature of the human body is 37 degrees centigrade. Because of gold’s unique conductivity, gold jewellery rapidly matches your body’s heat, becoming part of you.

In 95 BC, Chinese Emperor Hsiao Wu I minted gold commemorative piece to celebrate the sighting of a unicorn.
Gold is edible. Some Asian countries put gold in fruit, jelly snacks, coffee, and tea. Since at least the 1500s, Europeans have been putting gold leaf in bottles of liquor, such as Danziger Goldwasser and Goldschlager. Some Native American tribes believed consuming gold could allow humans to levitate.
The chemical symbol for gold is Au, from the Latin word aurum meaning “shining dawn” and from Aurora, the Roman goddess of the dawn. In 50 B.C., Romans began issuing gold coins called the Aureus and the smaller solidus.
Between A.D. 307 and 324, the worth of one pound of gold in Rome rose from 100,000 denarii (a Roman coin) to 300,000 denarii. By the middle of the fourth century, a pound of gold was worth 2,120,000,000 denarii—an early example of runaway inflation, which was partly responsible for the collapse of the Roman Empire.




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Where did gold come from?

We're all made out of "star stuff", and gold is no exception.
We’re all made out of “star stuff”, and gold is no exception.
The ancient Aztecs believed gold was in fact “the sweat of the sun”. Though this isn’t true, the phrase is a highly accurate metaphor.
Gold, like most heavy metals, are forged inside stars through a process called nuclear fusion. In the beginning, following the Big Bang, only two elements were formed: hydrogen and helium. A few hundred million years after the Big Bang, the first stars were blazing away with their nuclear fires. These nuclear fires forced lighter elements together to make slightly heavier elements, and these nuclear reactions released a huge amount of energy.
Gradually, these early stars began making elements such as carbon, nitrogen, oxygen — working their way up through the periodic table towards iron. But there was still no gold in the Universe. Once these earlier stars ran out of light elements to burn, they kicked in on the heavier ones.
Finally, as they burnt silicon to make iron, they exploded as a supernova, and for a few short moments, each star would release as much energy as all the regular stars in that galaxy put together.In that cataclysmic explosion, for the first time, atoms of gold were manufactured — and then hurled out into the Universe, along with the other debris from that explosion.
On Earth, gold finally reached us some 200 million years after the formation of the planet when meteorites packed with gold and other metals bombarded its surface. During the formation of Earth, molten iron sank to its centre to make the core. This took with it the vast majority of the planet’s precious metals — such as gold and platinum. In fact, there are enough precious metals in the core to cover the entire surface of Earth with a four-metre thick layer.
Another theory concerning the formation of gold that’s been gaining a lot of traction today is that the element can form following the collision of two neutron stars. Following the collapse of a massive star – at least eight times more massive than the Sun – what remains is a extremely dense core. They have masses comparable to a star, but that mass is compressed into an object roughly 10 kilometers in diameter, or the size of a city on Earth. Another way to look at this would be to imagine cramming Mount Everest into your morning cup of coffee to achieve the same density as a neutron star. At these huge densities, the fabric and space and time is stretched by exotic physics.
Two neutron stars in mutual orbit can collide when gravitational waves carry enough energy away from the system to destabilize the orbit. When this happens, a type of gamma-ray burst can occur – these are the most powerful explosions in the universe. The intense energy would be enough to create gold and other heavy elements, according to a paper published in the Astrophysical Journal Letters.
Check out the video below for a brief explanation of the neutron star gold formation hypothesis.

8 Reasons To Own Gold

Gold is respected throughout the world for its value and rich history, which has been interwoven into cultures for thousands of years. Coins containing gold appeared around 800 B.C., and the first pure gold coins were struck during the rein of King Croesus of Lydia about 300 years later. Throughout the centuries, people have continued to hold gold for various reasons. Below are eight reasons to own gold today.

A History of Holding Its Value
Unlike paper currency, coins or other assets, gold has maintained its value throughout the ages. People see gold as a way to pass on and preserve their wealth from one generation to the next.

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Weakness of the U.S. Dollar

Although the U.S. dollar is one of the world's most important reserve currencies, when the value of the dollar falls against other currencies as it did between 1998 and 2008, this often prompts people to flock to the security of gold, which raises gold prices . The price of gold nearly tripled between 1998 and 2008, reaching the $1,000-an-ounce milestone in early 2008 and nearly doubling between 2008 and 2012, hitting around the $1800-$1900 mark. The decline in the U.S. dollar occurred for a number of reasons, including the country's large budget and trade deficits and a large increase in the money supply.

Inflation

Gold has historically been an excellent hedge against inflation, because its price tends to rise when the cost of living increases. Over the past 50 years investors have seen gold prices soar and the stock market plunge during high-inflation years.

Deflation

Deflation, a period in which prices decrease, business activity slows and the economy is burdened by excessive debt, has not been seen globally since the Great Depression of the 1930s. During that time, the relative purchasing power of gold soared while other prices dropped sharply.

Geopolitical Uncertainty

Gold retains its value not only in times of financial uncertainty, but in times of geopolitical uncertainty. It is often called the "crisis commodity," because people flee to its relative safety when world tensions rise; during such times, it often outperforms other investments. For example, gold prices experienced some major price movements this year in response to the crisis occurring in the European Union. Its price often rises the most when confidence in governments is low.




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Supply Constraints

Much of the supply of gold in the market since the 1990s has come from sales of gold bullion from the vaults of global central banks. This selling by global central banks slowed greatly in 2008. At the same time, production of new gold from mines had been declining since 2000. According to BullionVault.com, annual gold-mining output fell from 2,573 metric tons in 2000 to 2,444 metric tons in 2007 (however, according to Goldsheetlinks.com, gold saw a rebound in production with output hitting nearly 2,700 metric tons in 2011.) It can take from five to 10 years to bring a new mine into production. As a general rule, reduction in the supply of gold increases gold prices.

Increasing Demand

In previous years, increased wealth of emerging market economies boosted demand for gold. In many of these countries, gold is intertwined into the culture. India is one of the largest gold-consuming nations in the world; it has many uses there, including jewelry. As such, the Indian wedding season in October is traditionally the time of the year that sees the highest global demand for gold (though it has taken a tumble in 2012.) In China, where gold bars are a traditional form of saving, the demand for gold has been steadfast.
Demand for gold has also grown among investors. Many are beginning to see commodities, particularly gold, as an investment class into which funds should be allocated. In fact, SPDR Gold Trust, became one of the largest ETFs in the U.S., as well as one of the world's largest holders of gold bullion in 2008, only four years after its inception.

Portfolio Diversification

The key to diversification is finding investments that are not closely correlated to one another; gold has historically had a negative correlation to stocks and other financial instruments. Recent history bears this out:

The 1970s was great for gold, but terrible for stocks.
The 1980s and 1990s were wonderful for stocks, but horrible for gold.
2008 saw stocks drop substantially as consumers migrated to gold.
Properly diversified investors combine gold with stocks and bonds in a portfolio to reduce the overall volatility and risk.

The Bottom Line

Gold should be an important part of a diversified investment portfolio because its price increases in response to events that cause the value of paper investments, such as stocks and bonds, to decline. Although the price of gold can be volatile in the short term, it has always maintained its value over the long term. Through the years, it has served as a hedge against inflation and the erosion of major currencies, and thus is an investment well worth considering.


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Why invest in gold?

Gold is a unique asset: highly liquid, yet scarce; it’s a luxury good as much as an investment. Gold is no one’s liability and carries no counterparty risk. As such, it can play a fundamental role in an investment portfolio.

Gold acts as a diversifier and a vehicle to mitigate losses in times of market stress. It can serve as a hedge against inflation and currency risk.

Key facts that investors should know:
Gold is a mainstream asset driven by many factors, not just investment demand
Gold is one of the most effective diversifiers
Gold provides competitive returns compared to other major financial assets
Gold offers downside protection and positive performance
Over time, fiat currencies – including the US dollar – tend to fall in value against gold.
The combination of these factors means that adding gold to a portfolio can enhance risk-adjusted returns.

But how much gold should investors add to achieve the maximum benefit? Portfolio allocation analysis (based on the seminal work of Richard and Robert Michaud) indicates that investors who hold between 2% to 10% of their portfolio in gold can significantly improve performance. This is also true even when assuming a conservative average annual gold return of a modest 2% to 4% – well below its actual, long-term historical performance.

Average annual gold demand ~4,100 tonnes* (approx US$166bn)

Gold demand estimates by sector:
Jewellery 54%
Investment 30%
Technology 10%
Central banks 6%
*Based on 10-year average demand estimates ending in 2016. Includes jewellery, technology, bars, coins and ETF demand. It excludes over-the-counter transactions.
Figures may not add to 100% due to rounding.
Source: Thomson Reuters GFMS, World Gold Council

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