A History of Precious Metal: Gold and Silver Prices Through the Ages

April 21, 2021

Gold and Silver Prices

The history of precious metals is a long one, and it’s a story that’s closely intertwined with the evolution of money and the growth of human civilization itself.

It’s impossible to understand the value of precious metals today without looking at their past. Gold is a commodity, placing it in the same asset class as things like oil, lumber, soybeans, and coffee – things that ultimately get consumed. For the most part, gold endures. Even when it’s used in jewellery, it can still be recycled back onto the market.

The silver price in Canada and around the world is considerably more influenced by consumption and industrial demand, and prices are going up based on factors like increased solar panel production. Nevertheless, it still retains an important role in investment portfolios based on its history as a store of value.

We’re going to take a look at the millennia-old history of bullion, gold bullion price history, and a more modern gold and silver price history in the late 20th and early 21st centuries. If you’re interested in buying bullion in Canada, it helps to know what historical factors have affected prices and understand how the relationship between bullion and fiat currency evolved out of historical contexts.

Earliest History: Decoration & Worship

Gold has fascinated humanity for thousands of years. The earliest archaeological finds date back to 4000 BC in Eastern Europe, and for the first couple thousand years of its history, it was used largely to make jewellery and religious idols. At first, gold was likely found in small quantities in streams and rivers. From the earliest days of civilization, it’s clear that humans highly prized this metal for its colour, durability, and scarcity.

Ancient Civilization: The Invention of Currency

There has always been a need for materials that functioned as a medium of value. Humans have thrived because they work together rather than try to be self-sufficient. Given the limitations of the barter economy, early humans quickly turned to materials that were rare in nature and could be controlled as a medium of value. Around the world, materials like cowry shells, mother-of-pearl, amber, copper, beads, and lead served as currency. These materials made it easy to trade, repay debts, and give gifts.

It wouldn’t be until around 1500 BC that the ancient Egyptians created the shekel, a coin made from a natural alloy of gold and silver called electrum. It quickly became the standard medium of exchange for international trade.

The first pure gold coin was minted in the kingdom of Lydia (in modern-day Turkey) around 650 to 600 BC. As global trade evolved between Europe, Africa, and Asia, coinage became essential thanks to its portability and durability. Political leaders favoured coins because they could control their production, and therefore circulation.

Silver Coin

Credit: eestellez via Freepik 

Middle Ages: The Rise of the Silver Coin

With the collapse of the Roman Empire, Western Europe lost much of its ability to maintain complex infrastructure (such as gold mines, mints, or the trade routes that could circulate the metals). Gold coinage was still used widely in the Byzantine Empire in the east, but in the early Middle Ages, copper-based coinage became common for small-scale trading in the west.

Gold effectively became too rare. It was hoarded by local kings or used by the Catholic Church for decoration. But by the eighth century, silver had become the standard currency across most of Europe. Silver-bearing ore turned out to be plentiful in Europe, especially Great Britain and Germany, and the silver rush cemented the metal’s importance in global economics.

Modernity: Paper Money and the Gold Standard

As early as 1257, Great Britain had fixed the price of gold to the pound, raising the price by about one pound every century. But as nations around the world began the practice of printing paper money, they quickly discovered the need to back fiat currency’s value.

Currency debasement was a regular practice wherever and whenever governments faced rising costs without the ability to mine more gold. The Roman Empire faced hyper-inflation as it mixed more copper into its coinage. But the invention of paper currency removed any illusion that currency was intrinsically worth something, and inflation inevitably followed high deficit spending or lack of faith in whatever regime ruled at the time.

The answer was the gold standard, a system in which countries kept enough bullion reserves to back-up their paper money. Technically, you could redeem bullion with your paper currency, and currencies were pegged to the metal.

If you’re curious about historical silver prices, in the US, a bimetallic monetary standard was created by 1792’s Mint Act, which fixed the silver price at a ratio of 15:1. Governments before that had also fixed the ratio in that range. In the Roman Empire, it was 12:1, while in medieval Venice, it reached 14:1. While the ratio would fluctuate over time, the United States’ bimetallic standard did not end until 1900. After the abandonment of the gold standard, historical silver prices largely became a thing of the past, as the ratio reached nearly 95:1 in 1991 and then 105:1 in 2020.

In 1944, the Bretton Woods Agreement was established between the US, Canada, Western Europe, Australia, and later Japan to facilitate reconstruction after World War II. The agreement created a monetary policy in which the US dollar would be backed by gold, and other nations’ currencies would be pegged to the American dollar.

That system ended between 1968 and 1973. President Nixon ended the convertibility of the dollar into gold, prompted by a growing crisis of confidence in the USD. In the years that followed, international currencies began to float against each other rather than remain pegged to the dollar. In 1974, laws changed that allowed American citizens to own gold bullion once again, and the contemporary bullion market began.

Precious Metals Investment

Credit: optimism_studio via Freepik 

Today: Precious Metals as an Investment Vehicle

Today, bullion is a popular investment tool and a safe haven against stock market volatility and inflation. When investors lose confidence in fiat currency or other assets, they park their money in bullion. Given the long history of gold and silver as a store of value, it’s not hard to see why. Unlike bonds, the metals don’t produce interest rates, but bonds are a vote of confidence in the corporations and governments issuing them.

As an investor, it’s important to note that gold remains traded in US dollars, which means the price of gold in Canada can also be affected by the exchange rate. A weaker dollar will mean more expensive bullion, even if it’s down compared to the US dollar.

Owning precious helps you diversify your portfolio. It has a long history as an inflation hedge – meaning it’s better than keeping wealth in just cash – and prices do well when the stock market is uncertain.

1970s: Gold Rush

In 1971, the gold price was fixed at $35 per ounce. With the end of the gold standard and the availability of bullion to the general public in the United States, gold price history was about to change. By the end of the decade, the gold price had reached $850 an ounce. The asset appreciated 2300% in a decade, while silver hit its highest ever price, at $48.70 per ounce by the end of the 1970s.

It wasn’t just pent-up demand for the precious metal in the United States. Bullion was never confiscated in Canada or other parts of the world as it was in the US in the 1930s, and owning gold was not banned in most places.

A number of concurrent crises contributed to rising gold and silver prices. The 1970s energy crisis created huge jumps in prices for oil, while stagnant economic growth meant purchasing power was rapidly eroding. At the same time, the US dollar was weak, and the stock market was up and down – the entire decade was a wash for returns.

1980 to 2000: Declining Prices and Long Plateau

Unfortunately, the 1980s brought a major correction to the bullion market. Gold prices slumped down to the $300-$400 range.

Meanwhile, silver crashed down $10 an ounce in 1980. Part of the reason for the crash was regulatory changes meant to curb market manipulation. In 1980, the infamous Hunt brothers owned 200 million oz of silver, over half the privately-owned global supply. Due to regulatory changes, they were forced to sell, glutting the market. They lost a billion dollars in the process.

For the next two decades, prices would stay fairly quiet, remaining in a plateau until the early to mid-2000s.

21st Century: Safe Haven in a Crisis

Gold price history would change for the better in the 21st century. When the Dotcom Bubble burst in 2000, stock markets were wiped out. By April 2000, the Nasdaq had lost 34% of its valuation. A bubble of over-valued, unprofitable, and unsustainable tech companies was bursting, and by the end of 2001, hundreds of publicly-traded companies had seen their stock drop by 80%.

It was not a good time to be in the stock market. More and more investors turned to gold to diversify their portfolios and counter the risk that came with their equities. Slowly but steadily, gold prices began to climb.

Growing political uncertainty soon followed the first market crash of the 21st century. As the United States expanded its deficit spending under President George W Bush and initiated the Iraq war, fears over global stability and monetary policy increased uncertainty. North Korea began missile tests, Hurricane Katrina devastated oil production in the Gulf of Mexico, and other conflicts broke out around the world. Oil prices were on the rise again, sparking inflation fears and sending the price of gold up to $869.75 by the end of 2008.

global bullion gold and silver

Credit: xb100 via Freepik 

Then came the Great Recession and the subprime mortgage crisis. There were a record 3 million foreclosures in 2008, forcing Americans out of their homes and sparking a financial crisis that would affect every country on the planet. Trillions of dollars were pumped into banking systems to prevent a deeper crisis, and sovereign debt crises sparked fears of fiscal collapse across Europe.

Greece, Ireland, Portugal, Cyprus, and Spain all experienced lengthy financial crises. Even Italy, a G8 country, came close to needing a bailout from the EU. The Eurozone crisis stagnated the global recovery and led to high unemployment that would transform their economies well into the 2010s. In 2011, gold prices surpassed $1,900 per ounce.

Finally, the most recent crisis to drive prices higher was the outbreak of COVID-19. Gold passed the $2,000 per ounce mark in 2020, while silver rallied to almost $27 per ounce.

The Future of Precious Metals

What’s in store for the future? It’s impossible to predict where prices will go, but the long history of gold and silver shows that their value isn’t going anywhere. For thousands of years, gold and silver have acted as a reliable store of value. Precious metals have evolved from jewellery to currency to the backbone of global monetary policy. Now, gold and silver are seen as reliable safe haven investments in times of global crisis.

Now could be a good time to think about buying silver as an investment as there are many factors pushing optimism on the market. Silver price history has shown that there is more upside to the metal, as it comes with a bit more volatility than gold. It moves faster during the same period of time, closing the gap in the silver-gold ratio as prices go up but also widening the difference when they decline. Most importantly, silver is more accessible for smaller investors due to the price difference. Thanks to silver, anyone can get themselves into the bullion market.

If you want to get involved in the bullion market, contact us today for a free bullion consultation to find out more about products available to everyday investors. Gold and silver coins and bars are the easiest way to invest in precious metals, diversify your portfolio, and prepare your savings for an uncertain world.

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