The ancient Egyptians started making jewelry and adornments with gold in circa. 5000 BC. Even today, gold remains popular, both for its beauty and rarity (interestingly ... gold is harder to find than diamonds). As such, it is not surprising that historical sources will very seldom agree on the precise date that gold was first used as a valuable commodity.
Some such sources state that gold's recorded discovery occurred earlier in circa. 6000 B.C., while others describe the pharaohs and temple priests using the relic metal for adornment in ancient Egypt circa. 3000 B.C. Notwithstanding, the first use of gold as money occurred around 700 B.C., being properly attributed to the citizens of the Kingdom of Lydia (presently western Turkey).
Whatever the accuracy of the dates, both silver and gold have been used in some form or fashion as currency since before the Middle Ages. In 1717, Sir Isaac Newton, Master of the Royal Mint at the time, overvalued the guinea (a coin minted in England between 1663 and 1814) in terms of its sterling value, and, thusly forced most silver out of circulation.
Thereafter, wars within Europe and trade deficits further depleted such silver reserves. Up until that point, silver and gold standards had both been in place, but by 1821, only a gold standard was adopted. Silver was still used in coinage (along with gold) but by this time, the use of bank notes was increasing. By 1816, Bank of England notes were backed by a specific amount of gold.
In 1792, the U.S. Congress adopted a bi-metallic standard (gold and silver) for the new nation's currency, with gold valued at U.S. $19.30 per troy ounce, which remained essentially unchanged until 1834 when the price of gold was raised to the U.S. $20.67 level which held for the next 100 years. England was the first country to adopt the gold standard in 1820. By the 1870's, France, Germany, Italy, Canada and the U.S. were also on the gold standard. (China adopted the silver standard.)
It is essential to recognize that the gold standard operated in a very different political era. The governments and central banks had one macro-economic mission at that time ... to preserve the gold standard. And, in furtherance of that, they did what was necessary to achieve that objective. For example, in the 1890's, the short-term interest rate in the U.S. went up as high as 70% in order to keep the U.S. on the gold standard and prevent people from fleeing with their gold.
As soon as the First World War broke out, countries suspended convertibility of their currencies. It was briefly reinstated from 1925 to 1931, and, even though countries tried to pick up and resume relationships where they left off prior to the war, widespread tensions, inflation and the dramatic shift in economic power made returning to the gold standard slow and painful at best.
The situation only worsened during the Great Depression, as its commitment to the gold standard meant the U.S. could not use monetary policy in order to boost its weakening economy, and, the effects of its collapse spread globally. As a result, the gold standard crumbled in the 1930's. Additionally, in 1933, the U.S. Government confiscated all of the gold in the country and made it illegal to own anything but a small amount.
It was not until 1934 that U.S. President Franklin Delano Roosevelt devalued the Dollar by raising the price of gold to U.S. $35.00 per ounce. F.D.R.'s stated purpose for dramatically increasing the value of gold was to boost commodity prices (especially farm products), and, to create greater employment for the millions who were suffering the devastating effects of the Great Depression.
In July 1944, 730 leading political and monetary experts from 44 countries, including John Maynard Keynes and Bank of Canada Governor Louis Rasminsky, gathered in Bretton Woods, New Hampshire, in order to create a "quasi-gold" standard called, appropriately, the "Bretton Woods System". Effectively, the System made the U.S. Dollar the world’s reserve currency and thereby the only currency convertible into gold.
In exchange, the U.S. government promised to redeem other central banks’ holdings of Dollars for gold at a fixed rate of U.S. $35.00 an ounce. Other currencies would move toward convertibility over time. Bretton Woods was also where the World Bank and the International Monetary Fund were created in order to adjust exchange rates and help manage global money supply.
However, on August 15, 1971, Bretton Woods broke down when then U.S. President Richard M. Nixon closed the “cash window” and announced that the U.S. would no longer redeem currency for gold. That was effectively the end of the gold standard.
In December 1971, representatives of the ten most industrialized nations met in Washington D.C. with the express purpose of taking whatever measures necessary in order to improve international economic conditions. The now famous "Smithsonian Agreement" accorded an immediate hike in the value of gold from U.S. $35.00 to $38.00 per ounce, and, President Nixon hailed it as "the most significant monetary agreement in the history of the world."
Unfortunately, it resulted in a measure "too little and too late". International economic conditions continued to deteriorate, forcing the U.S. Government in 1973 to devalue the Dollar a second time by raising the official price of gold to U.S. $42.22 per ounce. Finally, all international currencies were allowed to "float" freely against gold.
By June of that year, the London Gold Fixing had risen to an unprecedented U.S. $120.00 per ounce, and, exploding demand during the following months set the stage for the creation of gold futures trading on the New York and Chicago Exchanges in January 1975.
A worldwide "feeding frenzy" for gold cannonballed its price to an all-time high of U.S. $850.00 per ounce on January 21, 1980. Obviously, speculative excess had carried too far as after that date, the price of gold went into a 13 years downtrend, however, on balance, the long-term bear market remained intact until April 23, 1993. On that date, the New York and Chicago exchanges Gold futures contract closed at U.S. $347.50 ... which effectively heralded a reversal of the 13 year downtrend.
Thereafter, August 1999 was a landmark moment in the price of gold as it dropped to a price of U.S. $251.70 per ounce after central banks around the world were rumored to be reducing their gold bullion reserves, and, concurrently, mining companies were selling gold in forward markets.
By February 2003, outlook on gold had once again reversed. Many viewed gold as a safe-haven after the U.S. invasion of Iraq in 2003, and, geopolitical tensions between 2003 and 2008 continued to elevate the price of gold. In 2008, the global economic crisis increased the price of gold even further, and, after reaching a high of over U.S. $1,900.00 per ounce in 2011, gold has fallen again in recent years. The “public” demand for gold bars, coins and jewelry however remained high through 2013.
As of 2014, no countries in the world used a gold standard, and, in other words, no currency in the world is backed by gold. The last major currency to use a gold standard was the Swiss Franc, which used a 40% gold reserve until the year 2000. Of course, that does not mean that countries have sold all their gold or that their currencies are based upon nothing. Instead, most countries in the world maintain large gold reserves in order to defend their currency against possible future emergencies.
