Gold and silver are one of the oldest forms of currency in the world. These two precious metals have been known to circulate as tradable money for thousands of years. This is a trait that no other printed money can even come close to matching. If you ever wonder why some people say that gold and silver are the most enduring investment vehicle in the world, you can attribute as much to the fact that they have been around as long as money itself.
Gold has always been known as a symbol of luxury and prominence, while silver always painted a picture more in line with utility. Where gold is often worn as jewelry, silver was frequently used as silverware or other accessories.
Jewelry, Currency, and Common Usage
Throughout the past several thousand years, gold and silver have had many different uses. The most notable functions of gold and silver in day-to-day life are in jewelry and currency. No matter what time frame you are considering, gold and silver will have been a symbol of money and power. They glimmer, they are rare, and they are soft enough that they can be formed into many different shapes and sizes. These attractive traits are what make precious metals so desirable among people from around the world.
The actual time that gold and silver were first used as currency is debatable, but there is no disputing that they have been around for at least 2,000-3,000 years, with many believing that its use as currency dates back much further. Gold and silver have served as currency for a few very simple reasons: they are easy to mold, they are inherently rare, a static value can be attached according to weight and purity, and they cannot be artificially reproduced. Unlike paper money, there is no machine that can generate silver and gold. The amount of precious metals in the world today remains a static figure, varying based only on amounts that are readily available.
Aside from jewelry and currency, investments and industrial use are the other two primary functions of gold and silver. The value in metals traces back to its use as currency, while the industrial usage can be attributed to its soft, conductive qualities. Though you might not realize it, metals are frequently used in the production of everything from electronics to vehicles.
Gold Standard and Government
The Gold Standard is a term that many are familiar with. When a government is using the Gold Standard, it means that they are basing their currency and valuations on a worth equal to an amount in precious metals (namely gold and silver). The United States is one of the most notorious countries that had once used the gold standard.
From 1785 until 1861, in the relatively early years of the country, the US based their financial structure on currency that utilized gold and silver. Instead of the paper that is used today, coins made of pure gold and silver were traded in the free market. If it was not for financial crises in 1857, it is more than likely that this system would have endured for much longer than it did.
Executive Order 6102 is a case that many mistake as being the Gold Standard itself. In 1933, Franklin D. Roosevelt enacted Executive Order 6102, which stated that citizens were not to own their own stock piles of monetary gold. All gold was to be turned into the government, with the owners receiving $20.67 per ounce in compensation. The primary outcome of this event was a sharp increase in the price of gold, as it would rise to $35 per ounce shortly thereafter.
When the Gold Reserve Act was announced a year later in 1934, it marked the absolute end of the Gold Standard in the US. While the country had already moved from using gold and silver alone, it was still possible to trade currency for physical gold up until this point. Today, currency cannot be traded for precious metals beyond normal trade (private buying and selling).
Purity in Gold and Silver
There are common misconceptions when it comes to the purity of gold and silver products. With gold, even the most common jewelry buyer will be able to tell you that 24k (karat) is as good as it gets. 24 karat gold means pure gold, it just doesn’t get any finer. With silver, however, many will incorrectly state that Sterling Silver is pure. The truth is that Sterling Silver is only 92.5% actual silver, with the remaining 7.5% being comprised of a much cheaper metal, copper.
When it comes to investing and buying gold and silver, you will almost always be dealing with the most pure forms. Aside from coins which are produced with varied amounts of silver and gold content, almost all bars for both gold and silver are at least 99.9% pure. Purity is also represented in numerical form, commonly as .999 (99.9%) or .9999 (99.99%) gold or silver.
Now that we have explained the history of gold and silver as currencies, we will discuss gold’s and silver’s modern function as an investment.