Where does this rich and mysterious metal come from? Cover Art by ab_colours

This article originally appeared on Bankless Publishing.

“Hidden in the glorious wildness like unmined gold”

— John Muir

Eyes Wide Open

I vividly remember first learning about Fort Knox. I wasn’t more than a waist-high boy of five or six, but the memory has stuck with me. “A room filled with gold?!”, I exclaimed in awe to my father. My eyes widened at the prospect. It seemed impossible; the idea was just too fantastic and wonderful, like a cave full of pirates’ loot in an adventure novel by Robert Louis Stevenson. And yet it was true. Even today, Fort Knox is said to hold about half of the U.S. Treasury’s total supply of gold bullion.¹

Historical Uses of Gold

Nobody knows when gold was first discovered,² but it seems to have been in use for at least 6,500 years.³

The oldest gold may have been found in 1972 by a Bulgarian man shoveling trenches in Varna, a Southern European coastal town on the Black Sea. He first spotted a bracelet in the dirt, throwing it and other dirty objects — which he presumed were similar to other scraps of copper seen in those parts — in a shoe box which he tucked under his bed. This became the first haul of the eponymous “Varna gold”, which includes many artifacts that carbon date to 4,500 BC.⁴

The entirety of the Varna gold — bracelets, breastplates, earrings — was unearthed in a cemetery nearby the trench. Although the site contained 300 burials, only four plots contained the bulk of the buried gold.⁵ Anthropologists use the level of consolidation of precious metal wealth across burial sites as an indicator of social stratification. As with now, gold indicated the class and status of its holders within society.

In the tomb of Egyptian queen Hetepheres there was a variety of gold-covered furniture, exemplifying the use of gold to signify elite affluence and status in 2,700 BC.⁶

The ancient Sumerians, a culture that prospered for over three millennia,⁷ also used gold to convey wealth and status via jewelry, weapons, and art. The royal tombs of Ur contained a golden sculpture of a Ram caught in a thicket, circa 2,600 BC,⁸ and a Sumerian queen lain to rest with a golden diadem wore “…an elaborate headdress of gold leaves, gold ribbons, strands of lapis lazuli and carnelian beads, a tall comb of gold, chokers, necklaces, a pair of large crescent-shaped earrings, and a cape composed of strings of semi-precious stones.”⁹ In fact, the Sumerians used gold for just about everything but currency.¹⁰

According to Heroditus it was the Lydians, located in modern-day Turkey, who were the first to use gold and silver coins in 650–500 BC.¹¹¹²

“And of all men whom we know, the Lydians were the first to mint and use a coinage of gold and silver.¹³”

— Heroditus

Those within the Chu state in coastal China used gold squares as currency around that same time.¹⁴ Suffice to say, gold has been used as money or a store of value for over 4,500 years.

Cultural References to Gold

Gold is mentioned 417 times in the Bible.¹⁵ Genesis references a river that flows out of Eden past a land called Havilah, “where there is gold. And the gold of that land is good.”¹⁶ In the book of Exodus, Aaron made a golden calf from melted gold.¹⁷ In Psalms, King David writes, when speaking of the ways of the Lord, that they are more desirable “than gold, even much fine gold.” In The Book of Revelation, the streets of the city of Heaven are paved in gold, so clear they are transparent.¹⁸

In a more modern context, the Olympics award gold medals to the victors, children receive gold stars for making good grades, and the entertainment industry presents golden Oscars to its top players. In academia, the Nobel peace prize is made of gold. Across cultures and time, gold confers nobility and wealth. Rappers even stud their teeth with gold.

Clearly, gold is a multi-millennial, cross cultural, societally organizing, store of wealth. But what actually is gold?

Elements of Gold

Scientifically, gold is the 79th element on the periodic table and its symbol is Au, abbreviated Latin for Aurum, or gold, comes from Aus, which means to shine (like the dawn).¹⁹ Gold is classified as a noble metal because it’s resistant to oxidation and corrosion; it’s also non-magnetic, non-toxic, and even edible.

Gold enables peak electroconductive capacity, and is wrapped around wires to increase a current’s throughput.²⁰ Gold is so malleable that an ounce can be rolled into a strand five miles long,²¹ and it can be beaten into a leaf less than 100 nanometers thick, revealing a “bluish-green color when light is transmitted through it”.²²

Gold is valuable because it’s difficult to extract from the earth, and more so because it is a scarce resource. But gold’s ecumenical affiliation with affluence, with crowns, rings, and scepters, with power, money, purity, hierarchy and heavenly things, begs for more of a metaphysical lens.

Perhaps gold resists the earth’s magnetic pull because it represents something that is less terrestrial in nature, and more astral. Kings and queens are adorned with gold; it is a symbol of the sun, and is as effulgent as the stars.

It only seems fitting that this strange and precious element made its way into a modern standardization of value as money.

Gold-Backed Currency

The gold standard began by royal decree of King George I on December 22, 1717, in England. This pronunciation was made on recommendation of Sir Isaac Newton, Master of the Royal Mint,²³ who sought to maintain a parity in domestic supply of both silver and gold,²⁴ to elevate the status of his office, and reduce counterfeiting.²⁵ This gold standard wasn’t passed into English law until 1819.

The U.S. shifted to the gold standard in 1834, but this gold standard began de facto in 1879. Fiat money called the “greenback” had been issued to help finance the Civil War; this printed money was backed by the full faith and credit of the U.S. Government (but not precious metals). The government made good on this issuance by allowing redemption once the greenback had finally achieved parity with gold.²⁶ A greenback was a promissory note that people could trust, a pledge for a redemption of equal value in gold. This promise was signed into law with The Gold Act of 1900.²⁷

From 1879 to 1933, the U.S. was on a true gold standard. People could bring greenbacks into banks and get gold, specifically at a rate of $20.67 per troy ounce. Two things came from those fiat greenbacks issued during the Civil War: people became familiar with using paper currency and the government printed it.²⁸

During the so-called Roaring Twenties, the economy went through an unprecedented expansion, and trust in the American dollar was high. Between 1922–1929, the Dow Jones Industrial Average, the main U.S. stock market, rose 400%.²⁹ But banks became loose with both their loans and investment services. They became overstretched, and started doing things like selling “repackaged bad loans from Latin America as new securities”.³⁰

The result of this largess was Black Tuesday on Oct 29th, 1929, when the U.S. stock market crashed 25% in a single day. Americans’ confidence in the banking system quickly eroded. They brought their greenbacks to the bank to exchange for gold. When the gold was unavailable, they wanted their holdings in fiat money, and a full-blown run on banks ensued. Since banks re-lend deposits and were only required to keep 40% of their reserves on hand, this demand could not be covered all at once, which led to widespread insolvencies. During the height of the Great Depression, between 1929–1933, nearly half of the banks in America closed or were consumed by bigger banks.³¹

U.S. Dollar: Money or Paper Fictions?

By March 1, 1933 the New York Fed fell below its own self-imposed 40% gold reserves requirement, and the head of the bank sent a message to Washington that he would no longer take responsibility for running a ship with deficient reserves.³² What ensued on March 6, 1933, thirty-six hours into Franklin Delano Roosevelt’s first of three terms as president, was a suspension of all exchanges of gold and a forced closing of all banks for a week.³³*

Then came a shocking move to bail out the banking system. Via Executive Order 6102, the lawful right to own gold was rescinded.³⁴ Americans were required to swap their “gold coins, bullion, or gold certificates”³⁵ for any other legal tender at the exchange rate of $20.67 per troy ounce.³⁶ Failure to comply could result in up to a $10,000 fine and 10 years in federal prison.³⁷

“By executive order, on April 5, 1933 the “hoarding” of gold was forbidden. Gold had to be turned in to the government at the official price of $20.67 per troy ounce. Essentially, the country’s gold was nationalized.³⁸”

— Brief History of the Gold Standard in the United States

Since Roosevelt outlawed gold ownership, anyone who hadn’t brought their gold to their local Federal Reserve by May 1, 1933 would be deemed a “hoarder” and subject to punishment. This may have been the source of the negative connotation around the word “hoarder”. We may one day see a similar connotation around the word “hodler”, and a similar executive order around the holding of bitcoin.

In 1933 honest Americans were forced to accept the 1900 standard exchange rate of $20.67 for their gold. If that was not bad enough, on January 30 the following year, in The Gold Reserve Act of 1934, the dollar was devalued to $35 per troy ounce. In less than one year’s time, the American people had been deprived of their precious metal, threatened with imprisonment if they kept it, and had their forced-swapped and hard-earned dollars devalued by 41%.

“Section 2 of the [The Gold Reserve Act] transferred ownership of all monetary gold in the United States to the U.S. Treasury,”³⁹ thereby nationalizing the gold supply, which was later used to reconstitute the Federal Reserve. Cumulatively, these actions effectively removed the U.S. domestic population from the gold standard, transferred all gold ownership to the U.S. Treasury, and devalued the dollar in the process.⁴⁰

This inflation of dollars relative to gold conveniently allowed the U.S. Treasury to pay off foreign debts at 3/5 their original cost. Economists might tell you it was the only way forward. After all, the Great Depression was upon the United States.

Regardless of the opinions of economists, what was certain is that the move entirely nationalized the gold supply. For the next three decades, people in the U.S. couldn’t redeem their dollars for gold, but the dollar was still superficially pegged to gold and it became the backbone of international trade.

Americans haven’t been able to trade in dollars for gold since 1933, but what applies at home is not the case abroad.⁴¹ For major players in the worldwide marketplace, the U.S. dollar was not only still backed by gold, it was guaranteed to such a degree that dollars became the most powerful currency on the planet.

The Bretton-Woods Agreement formalized the post-war international order in 1944, and also created the International Monetary Fund, which pegged the U.S. dollar as the world reserve currency. The U.S. officially joined the IMF in 1945, when the Bretton-Woods Agreements Act was signed into law. This law made dollars the rubric of measurement for all currencies, on the understanding that dollars would remain redeemable from the U.S. Treasury for gold at $35 per troy ounce. This promise held true for nearly three decades.

The Day the Dollar Floated Away

Fast forward thirty years, and the expanding costs of printing money to finance the Vietnam War and the resulting depletion of U.S. gold reserves finally came to a head. By 1965, the requirement for the Fed to hold gold against its deposits was repealed.⁴² In 1968, the requirement to hold gold against its issued notes was repealed.⁴³ By 1971, America stopped offering gold to the world in exchange for its dollars.

The so-called “gold window” closed during a speech by President Nixon, entitled “The Challenge of Peace”.⁴⁴ On August 15, 1971, the Nixon Administration “announced that it would not freely convert dollars at their official exchange rate.”⁴⁵

“I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold or other reserve assets, except in amounts and conditions determined to be in the interest of monetary stability and in the best interests of the United States.⁴⁶”

— President Richard Nixon

It was supposed to be temporary, but the gold window has remained closed to this day.

After the gold window closed, the dollar inflated even more. Oil prices climbed as well, so much so that the whole decade was dubbed “The Great Inflation”.⁴⁷ But in 1974, Nixon hatched a plan with Saudi Arabia to make the dollar the preferred medium of exchange for petroleum.⁴⁸ The critical moment was when a bond trader from the Salomon Brothers, then one of the largest investment banks in the U.S., brokered a do-or-die deal for the dollar’s survival.⁴⁹

What resulted was the petrodollar, a significant amount of off-shore demand buying government bonds under the table at slash rates, and the invention of OPEC to obfuscate who bought what from that region, which the Treasury spent decades keeping under wraps from other governmental organizations.⁵⁰ Essentially it required all large purchasers of oil worldwide to settle in U.S. dollars.

The dollar had found not another home per se, but a new use case, and one that was universal — the need to buy energy. This brand-new worldwide demand for dollars allowed for a much larger supply to be printed without disastrous effects. It was this phase transition from a hard commodity money to pure fiat that allowed the U.S. to massively capitalize on this mode, as the petrodollar meant that the U.S. was the only country that could basically print its own oil.

A few years later, with a new “peg” for the dollar intact, all that was left was the paperwork. The gold standard was severed by Congress via an amendment to the Bretton-Woods Agreements Act⁵¹ that simply removed the part that said the President can’t deprive the Fund (International Monetary Fund) of its gold.⁵²

This was already true in practice, of course. The U.S. Treasury, which held the IMF’s gold, wouldn’t accept dollars for this gold since President Nixon’s speech. However, to formalize this practice, the Amendment passed Congress, and entered into force April 1, 1977.⁵³ This was the historical day the dollar floated away. With a wink from fate, it happened on April Fools’ Day.

So much time has passed since gold redemption was commonplace that most people simply don’t question their fiat dollars. But without actual backing, fiat currency could be considered paper fictions, which only work because everyone agrees to pay attention to them.

Author & Editor Bios

Frank America is an author, researcher, comedian, and musician. He has a background in English Literature, Philosophy, and Communications. Frank is a co-founder of The Rug News, and content manager at Bankless Publishing.

Tomahawk has been writing and editing at BanklessDAO from inception, and entered the crypto space as an investor in 2017. He’s a big believer in the power of tokenized mission-aligned communities and the massive potential Ethereum offers to solve humanity’s most pressing coordination failures.

Hiro Kennelly is a writer, editor, and coordinator at BanklessDAO and the Editor-in-Chief at Good Morning News. He is also helping to build a grants-focused organization at DAOpunks.

Designer Bio

ab_colours is a versatile designer with over seven years of experience. He specializes in doing product design, UX design and brand identity. He has been DAOing for the past eight months and has been able to amass quite a lot of knowledge about the fascinating blockchain space.

Endnotes

¹ ”Fort Knox Bullion Depository” usmint.gov, https://www.usmint.gov/about/mint-tours-facilities/fort-knox, Accessed 7 Aug 2021.

² https://www.periodic-table.org/Gold-periodic-table/

³ https://nma.org/pdf/gold/gold_history.pdf

⁴ Curry, Andrew. “Mystery of the Varna Gold: What Caused Those Ancient Societies to Disappear”, 18 April 2016, smithsonianmag.com, https://www.smithsonianmag.com/travel/varna-bulgaria-gold-graves-social-hierarchy-prehistoric-archaelogy-smithsonian-journeys-travel-quarterly, accessed 10 Aug 2021.

⁵ Ibid.

⁶https://scholar.harvard.edu/files/petermanuelian/files/manuelian_jarce_53_2017.pdf

⁷ https://www.worldhistory.org/timeline/Sumerians/

⁸ Harms, William. “Treasures from the Royal Tombs of Ur”, 21 Oct 2001, chronicle.uchicago.edu, https://chronicle.uchicago.edu/001019/ur.shtml, accessed 10 Aug, 2021.

⁹ Ibid.

¹⁰ https://www.usgoldbureau.com/news/importance-gold-history-sumerian-roots

¹¹ Augustin, Russel. “Ancient Coins: Lydian Gold Considered First Coins in the World”, 23 March 2020, https://coinweek.com/ancient-coins/ancient-coins-first-official-coin/, Accessed 9 Aug 2020

¹² Cahill, Nicholas, D. “The Coins of Sardis”, The Lydians and Their World, 2010, https://www.sardisexpedition.org/en/essays/latw-kroll-coins-of-sardis

¹³ Herodotus, Histories, Book I.94

¹⁴ Robbins, Ron. “Gold and Silver Rise again as History’s Chosen Currencies”, 23 March, 2011, https://enlightened-economics.com/tag/ying-yuan-gold/, accessed 9 Aug 2021.

¹⁵ https://www.goodnewsforcatholics.com/bible/how-many-times-is-gold-mentioned-in-the-bible.html

¹⁶ https://www.biblegateway.com/passage/?search=Genesis+2&version=KJV

¹⁷ https://divinity.yale.edu/sites/default/files/exodus-8-golden-calf_0.pdf

¹⁸ https://www.biblegateway.com/passage/?search=Revelation+21%3A21&version=KJV

¹⁹ https://www.etymonline.com/word/*aus-?ref=etymonline_crossreference#etymonline_v_52629

²⁰ https://van.physics.illinois.edu/qa/listing.php?id=15460

²¹ https://www.thoughtco.com/interesting-gold-facts-607641

²² http://www.webexhibits.org/causesofcolor/9.html

²³ Newton, Isaac. “Sir Isaac Newtons State of the Gold and Silver” 25 Sept. 1717, pierre-marteau.com, http://www.pierre-marteau.com/editions/1701-25-mint-reports/report-1717-09-25.html

²⁴ Ibid.

²⁵https://www.researchgate.net/publication/263446445_The_Master_of_the_Royal_Mint_How_much_money_did_Isaac_Newton_save_Britain

²⁶ Elwell, K. Craig. “Brief history of the Gold Standard in the United States” fas.org, 23 June 2011, https://fas.org/sgp/crs/misc/R41887.pdf, Accessed 8 July 2021.

²⁷ The Gold Standard Act. 19 March 1900. 56 Congress. Session I. Chapter 41. https://govtrackus.s3.amazonaws.com/legislink/pdf/stat/31/STATUTE-31-Pg45a.pdf

²⁸ Ibid.

²⁹ “The 1920’s”, fdic.gov, https://www.fdic.gov/about/history/timeline/1920s.html, accessed 16 Aug 2021.

³⁰ Ibid.

³¹ Bernacki, Benjamin. Non Monetary Effects of the Financial Crisis, Jan 1983, nber.org, https://www.nber.org/papers/w1054, Accessed 13 Aug 2021.

³² Jabaily, Robert. “Bank Holiday of 1933”, federalreservehistory.org, 22 Nov 2013, https://www.federalreservehistory.org/essays/bank-holiday-of-1933, accessed 13 Aug 2021.

³³ Roosevelt, Franklin D. “Proclamation 2039 — Declaring Bank Holiday,” 6 March 1933. https://www.presidency.ucsb.edu/documents/proclamation-2039-bank-holiday-march-6-9-1933-inclusive, Accessed 12 Oct 2022

*[This so-called “bank holiday” was in fact an illegal action at the time, retroactively made lawful by the Emergency Banking Act passed on March 9th, 1933, which altered the conditions from the Trading with the Enemy Act of 1913, to expand presidential authority during national emergencies, not only in times of war.]

³⁴ “Executive Order 6102” 5 April 1933, presidency.ucsb.edu, https://www.presidency.ucsb.edu/documents/executive-order-6102-requiring-gold-coin-gold-bullion-and-gold-certificates-be-delivered, Accessed 7 Aug 2021.

³⁵ Ibid.

³⁶ Ibid.

³⁷ Marriotti, Steve. “When owning Gold was Illegal in American, and why it could be again”, HuffPost.com, 6 Dec. 2017; https://www.huffpost.com/entry/when-owning-gold-was-ille_b_10708196, Accessed Aug 7, 2021.

³⁸ Elwell, K. Craig. “Brief history of the Gold Standard in the United States” fas.org, 23 June 2011, https://fas.org/sgp/crs/misc/R41887.pdf, Accessed 8 July 2021.

³⁹ Ibid.

⁴⁰ “Gold Reserve Act of 1934”, federal reserve history.org, Jan 30th, 1934, https://www.federalreservehistory.org/essays/gold-reserve-act, Accessed 7 Aug 2021.

⁴¹ Elwell, K. Craig. “Brief history of the Gold Standard in the United States” fas.org, 23 June 2011, https://fas.org/sgp/crs/misc/R41887.pdf, Accessed 8 July 2021.

⁴² “Federal Reserve banks maintain certain reserves in gold certificates against deposit liabilities”, uscode.house.gov, 3 March, 1965, https://uscode.house.gov/statutes/pl/89/4.pdf, accessed 7 Aug, 2021.

⁴³ “To eliminate the reserve requirements for Federal Reserve notes: and for United States notes and Treasury notes of 1890”, uscode.house.gov, 18 March 1968, https://uscode.house.gov/statutes/pl/90/269.pdf, Accessed 7 Aug 2021.

⁴⁴ Nixon, Richard. 15 Aug, 1971, “The Challenge of Peace”, presidency.ucsb.edu, https://www.presidency.ucsb.edu/documents/address-the-nation-outlining-new-economic-policy-the-challenge-peace, Accessed 12 Aug 2021.

⁴⁵ Elwell, K. Craig. “Brief history of the Gold Standard in the United States”, fas.org, 23 June 2011, https://fas.org/sgp/crs/misc/R41887.pdf, Accessed 8 July 2021.

⁴⁶ Nixon, Richard. 15 Aug, 1971, “The Challenge of Peace”, cvce..eu, https://www.cvce.eu/content/publication/1999/1/1/168eed17-f28b-487b-9cd2-6d668e42e63a/publishable_en.pdf, Accessed 25 May 2022.

⁴⁷ Kramer, Leslie. “How The Great Inflation of the 1970’s Happened”, investopedia.com, https://www.investopedia.com/articles/economics/09/1970s-great-inflation.asp Accessed 25 May 2022.

⁴⁸ Szulc, Tad. 20 Sept, 1981, “Recycling Petrodollars The 100 Billion Understanding”, nytimes.com, https://www.nytimes.com/1981/09/20/magazine/recycling-petrodollars-the-100-billion-understanding.html, Accessed 26 May 2022.

⁴⁹ Wong, Andrea. 30 May, 2016. “The Untold Story Behind Saudi Arabia’s 41 Year Debt Secret”, bloomberg.com, https://www.bloomberg.com/news/features/2016-05-30/the-untold-story-behind-saudi-arabia-s-41-year-u-s-debt-secret, Accessed 25 May 2022.

⁵⁰ Ibid.

⁵¹ “Bretton-Woods Agreement Act, Amendments”, uscode.house.gov, 19 Oct, 1976, https://uscode.house.gov/statutes/pl/94/564.pdf, accessed 7 Aug, 2021.

⁵² Amendment to The Bretton-Woods Agreement Act. 94th Congress. Public Law 94–562, congress.gov, 19 Oct, 1976, https://www.congress.gov/94/statute/STATUTE-90/STATUTE-90-Pg2660.pdf, Accessed 12 Aug 2021.

⁵³ 22 US Code Statute 286(a). [Notes tab]. Law.cornell.edu, 1 April 1978, https://www.law.cornell.edu/uscode/text/22/286a, Accessed 13 Aug 2021.

Gold, The Standard, and How The Dollar Floated Away