XAU - Gold

Gold as a currency

Gold has been used as a foundation for exchange, payment, and value storage. This system began thousands of years ago when ancient civilizations such as Egypt and Rome used gold as currency for trade transactions. Gold currency was not only gold in the form of coins but also included gold certificates, in which countries pledged to pay a certain amount of gold according to the value stated on these documents.

At the end of the 19th century and early 20th century, the gold standard was widely adopted by many countries, where each country's currency was fixed to a specific amount of gold. This system helped stabilize the value of national currencies and created trust in international transactions. However, after the economic crisis during World War II and global financial instability, the gold standard was gradually replaced by fiat currency systems.

Why was gold chosen as currency?

The primary reason gold became a currency tool lies in its ability to preserve value and its durability over time. Gold is a pure metal, minimally affected by natural factors such as temperature, humidity, oxygen, or other corrosive substances. This makes gold almost immune to depreciation, maintaining its luster and being easily recognizable in transactions.

Compared to other metals like silver, copper, or aluminum, gold does not tarnish or react with chemicals, meaning it can last thousands of years without changing.

Additionally, gold is easily identifiable due to its color and unique physical properties. Its high density makes it distinguishable from other metals, and its malleability allows it to be easily molded into coins, gold bars, or jewelry while retaining its aesthetic and value.

How gold exchange rates impact the global market

The gold exchange rate is the price at which gold is traded on the international market, usually measured in ounces. This rate can fluctuate daily, influenced by various factors, including the global economic situation, financial policies of countries, demand for gold investments, and fluctuations in stock markets.

One of the most significant factors affecting the gold exchange rate is interest rates. When interest rates are low, gold becomes more attractive compared to other assets like bonds or stocks, as the yield from these assets decreases. In contrast, when interest rates are high, investors tend to shift to higher-yielding assets, which can lead to a decrease in gold prices.

Additionally, the gold exchange rate is influenced by supply and demand on the market. Gold is a finite resource, and mining it can be challenging both in terms of cost and environmental impact. This scarcity helps maintain its value.

The gold exchange rate is also strongly affected by global political and economic fluctuations. During political crises, wars, or financial instability, the demand for safe havens increases, leading to a rise in gold’s value. During periods of stability, gold prices usually fluctuate within a narrower range.

The end of the gold standard, especially when the United States abandoned it in 1971, marked the end of gold as a mainstream currency tool. Today, countries use fiat currencies, where the money is backed by governments rather than gold.

While gold is no longer widely used as currency for everyday transactions, it remains a crucial asset in the global financial system. With its ability to preserve value and high liquidity, gold is an indispensable asset in the investment portfolios of many individuals and nations. Gold exchange rates are impacted by numerous economic and political factors but continue to hold a stable position in a volatile financial world.

Notably, gold’s high divisibility enables it to be broken into smaller units for use in transactions without losing value – an essential feature in currency payments.