Gold Bullion is, first and foremost, a monetary asset. This is what distinguishes it from gold jewellery.
True, Bullion coins can be very attractive objects, and even a gold bar has a certain allure, especially if it carries the exotic markings of a long-defunct government – that of the Russian Tsar, for example.
But what makes it “Bullion” is the fact that its value derives simply from what it is, namely the best-known, the most sought-after and the most widely accepted of the precious metals – gold.
Gold as a form of currency
Bullion, in whatever form, is essentially a form of currency. Gold Bullion may not have been issued by a central bank or national treasury, but it is a form of money nevertheless.
Ask the International Monetary Fund, which tries to keep the world economy on track. Its own reserves contain, at current market prices, about $112 billion-worth of gold Bullion (£67 billion), out of total resources of $734 billion (£437 billion).
Or ask the Bank of England, which holds £10.5 billion-worth of gold Bullion on behalf of Her Majesty’s Treasury.
Indeed, ask just about any central bank or finance ministry, such as the US Treasury, a large part of whose gold reserves are, famously, held next to the huge Fort Knox army garrison in Kentucky.
An international asset
For governments around the world, gold is the “asset of last resort”, the ultimate long-stop in case of emergency.
In the 1997 Asian financial crisis, for example, patriotic women in South Korea handed in their wedding rings to help bolster the authorities’ monetary firepower. Here in Britain in 1914, on the outbreak of the First World War, when the country’s gold reserves needed all the support they could get, gold Sovereigns were withdrawn from circulation to help finance the impending conflict.
The gold standard
Until 1914 and the outbreak of the First World War, the link between paper money and gold was explicit, hence the “promise to pay” on British banknotes. Then between 1945 and 1971, western currencies were tied to the US dollar which, in turn, was tied to gold – at the rate of $35 a Troy ounce.
The last of what used to be called the “gold standard” ended finally in 2000, when Switzerland broke the link between its currency issue and gold. But the expression lives on, used to describe everything from tough-to-pass school examinations to the very best in luxury motoring. Used, in other words, to describe something of the highest quality.
Gold’s monetary role
While the formal gold standard is long gone, gold’s monetary role remains, and not only in the above mentioned sense of occupying the vaults of central banks and finance ministries.
That this one metal plays such an important part in the world’s financial system may seem strange in an age of instant computer transfers and “cyber-currencies” such as Bitcoin. But again and again, gold has showed its value and resilience as a monetary asset.
When the chips are down, it seems, nothing is as good as gold.