Gold Remains Attractive Throughout History

Wednesday, 17 Nov 2010 04:11 PM

By Ralph Hostetter

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It should not be surprising in these times of stress, economic frustrations, and questions about the values we place on paper currencies that the subject of gold and its market value should come to the fore.

Historically, gold has been accepted as the ultimate currency. In addition to its established monetary value, its timeless intrinsic value backs it up.

Gold's value has never been worth zero.

Fascination with gold and its value has been the subject of writers dating as far back as the 9th century B.C.

One such historian was Homer, 9th century poet who produced 28 volumes of the Iliad and Odyssey describing the life and times of the ancient city of Troy. Many considered the volumes to be mere poetry meandering from the mind of a  Greek wanderer.

The Iliad and the Odyssey described in detail a treasury of gold that King Priam, ruler of Troy for 40 years, held in the royal palace.

With the final collapse of the Trojan Empire, the gold disappeared without a trace — with the exception of Homer's description.

About 3,000 years passed, until the arrival of archaeologist Heinrich Schliemann (1822-1890).

Schliemann was the son of a poor Protestant minister in Germany. His father schooled him in the tales of the Iliad and Odyssey and the Illustrated History of the World. Schliemann became interested early on in the ancient Greek language, inspired by overhearing a university student reciting the Odyssey in classical Greek. He later claimed that, at the age of 8, he had declared he would excavate Troyone day .

Up to the time of Schliemann, many scholars looked upon the Iliad and the Odyssey as ancient epics, or songs. Schliemann took the position that the books actually were accurate accounts of the day. By this time, he had become an archaeologist and set out to find and excavate the ancient 9th century B.C. city of Troy to locate King Priam's treasure.

In ancient times, when one civilization would conquer another, it would destroy all semblance of the conquered nation. Such is the case of Troy.

Schliemann had to excavate through the remnants of four destroyed civilizations before he found the 9th century B.C. city of Troy, five levels down.

In 1873, Schliemann located the remnants of the royal palace of King Priam, containing the treasure at the location Homer described.

The treasure, which was intact, was removed to a Berlin museum. The Russians captured the treasure when they invaded Germany during World War II. At last reports, it was in a museum in Moscow.

As a footnote, Schliemann had become involved in the California gold rush of 1849. A wealthy man by this time, he was president of a bank he founded in California that bought gold dust from the '49er miners.

Gold was back in the news again last week after the president of the World Bank, Robert Zoellick, caught the world by surprise when he wrote in the Financial Times that the world's largest economies should consider gold as an indicator to help set foreign currencies' exchange rates.

He seemed to be saying loud and clear the United States should return to the "gold standard." He has since retracted this statement.

The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold.

President Richard Nixon ended the direct convertibility of the dollar to gold in 1971. Called the "Nixon Shock," his actions brought about the end of the U.S. gold standard and the direct convertibility of the dollar to gold in 1971.

The value of gold has gone up dramatically in the past 10 years. It has risen from $256 an ounce in 2001 to a record high of $1,410 an ounce as of Monday. This is an increase of 417 percent.

Having sparked a lively debate over the return to using gold as a peg for valuing global currencies, Zoellick said in a statement CNBC published Nov. 10 that his comments were misunderstood.

He told CNBC, “Gold is the 'elephant in the room' that must be addressed by policymakers, as it's being used as an alternative monetary asset because of unease about the strength of developed economies.”

Zoellick told CNBC he is not in favor of a return to the gold standard. Instead, he called for a more international currency system that could involve the dollar, euro, yen, pound, and yuan. He said in the Financial Times that gold could be used as an "international reference point of market expectations about inflation, deflation and future currency values."

“The dollar's dominance on world markets is changing and now multiple currencies are playing a greater role in the trade of assets,” Zoellick told CNBC.

From King Priam in ancient Troy to archaeologist Schliemann and the '49ers in California to today’s investors, the allure of gold is still irresistible.


E. Ralph Hostetter, a prominent businessman and agricultural publisher, also is a national and local award-winning columnist. He welcomes comments by email sent to eralphhostetter@yahoo.com.


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