Commodities: The Sweat of the Sun, Gold — An Introduction of the Market

Dimitrios Gourtzilidis
May 1 · 5 min read

The first commodity that an investor needs to know about is gold. Human history is full of stories about gold. Stories and legends about golden cities like “Eldorado,” or people that with a simple touch would turn anything to gold like “King Midas.” Gold is an unbreakable piece of the world’s financial history.

Quick Financial History

Archimedes (287 BC-212 BC) was eligible had his Eureka moment when he found a way, through water’s upward buoyant force, to check the purity of the King Hiero II of Syracuse crown in gold. In Rome, Emperor Augustus (63 BC-14 AD) had set the price of gold at 45 coins to the pound. The trend of setting gold’s price was continued until recent times.

Between 1312 and 1337, the richest man in history, Mansa Musa, the ruler of the Mali Empire, traveled across Africa and the Middle East with hundred camels loaded with gold. So much that depressed the monetary price in Egypt for over a decade and caused high inflation.

The Incas of South America, between 1438–1533, were referring to gold as “the sweat of the sun,” and Alchemists in the middle ages were trying to create gold out of other elements.

Modern History

After 33 years, the US left the domestic conversion of paper money to gold, and in 1944 with the Bretton Woods system, the U.S. dollar became the monetary standard for gold conversion. In 1971, the Bretton Woods system was abandoned, and gold got a variable rate of conversion.

Chemistry

  • Chemistry Symbol: AU

Unlike the alchemists of the middle ages, we are now able to construct gold out of other elements in a nuclear reactor by irradiation of either platinum or mercury. The cost of this process though, exceeds by far the monetary benefit of creating artificial gold, and thus it will not replace gold mining for the decades, or even centuries, to come.

In nature, gold is created, through the rapid neutron capture process, inside stars like our sun, but after they explode into a supernova.

Gold does not react with oxygen, and thus it doesn’t rust.

Gold Mining and Pollution

This process involves, in many cases, the usage of the chemical element of mercury, in order to optimize the recovery of gold pieces from rocks. Mercury is highly poisonous, and in many gold mining sites, the processes leave a number of poisonous mining waste. These wastes are highly hazardous, and they are second only to nuclear waste. It is been estimated that 45,000 metric tons of mercury have been used for this process in California, and they haven’t been recovered.

The World Gold Council has created safety standards for gold mining, and they communicate the details in the following link https://www.gold.org/about-gold/gold-supply/responsible-gold

So far, it is estimated that 75% of the gold extracted so far has been extracted since 1910, and if we were to meld it together, it would create a 20m-side cube.

In our days, the mining of gold has been declined.

Applications

The gold pureness is been measured in “karats,” with 24 karats or 24k been pure or fine gold.

Gold in the Financial markets.

  • The symbol in Financial Markets: XAU
  • Example In a Pair: XAU / USD

The biggest percentage of the world’s gold is held into “gold bullions” also known as “gold bars,” and central banks are the biggest gold reserve holders. The U.S, Germany, Italy, France, and Russia make the top five countries per gold reserves in the world. These reserves are been help to support government expenditures but also to sustain their growth against the inflation rate. This exact usage has gold for retail investors.

The above-ground gold reserves are been worth $10,9 trillion, with a rate of $1,715 per ounce.

Gold Investment Vehicles

Gold is mainly used to hedge other investments and save the holder for downward moves, because historically when the overall economy is moving downwards, investors use gold as safe-heaven, and thus gold moves in the opposite direction.

The Capital

A publishing platform for professionals now available on https://thecapital.io

Medium is an open platform where 170 million readers come to find insightful and dynamic thinking. Here, expert and undiscovered voices alike dive into the heart of any topic and bring new ideas to the surface. Learn more

Follow the writers, publications, and topics that matter to you, and you’ll see them on your homepage and in your inbox. Explore

If you have a story to tell, knowledge to share, or a perspective to offer — welcome home. It’s easy and free to post your thinking on any topic. Write on Medium

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store