The Power of Gold (2004)

SBS

Roadshow Entertainment

R4 DVD

Reviewer: Bob Estreich

From the earliest days people have been obsessed by gold. It was one of the first metals found in its native form. It was attractive and easy to make into artistic objects although it had no other practical use.

This 3-part documentary looks at the history of gold around the world. The story begins in the kingdoms that occupied what is now Turkey, where gold was plentiful in the rivers and streams. From the Kingdom of Lydia came the first non-decorative use – money. The Lydian stater was a small coin made from naturally occurring electrum, an alloy of gold and silver. The concept of a piece of gold representing value made trading in this part of the world so simple that the idea was adopted in many other countries. In order to maintain the exact ratio of gold to silver in the alloy the Lydians also developed metallurgical techniques for separating the two metals.

The first episode shows how important gold was to the early civilisations leading up to the Romans. They had to have gold to pay their troops so they developed advanced mining techniques that stripped whole mountains in Spain.

In the second episode the story continues. It looks at the gold-driven conquest of South America and the effect of so much gold on European history. One effect was on trade. To avoid the need for merchants to carry bags of gold coin around with them the Promissory Note was introduced. This was literally a note that promised to pay a certain amount in gold coin on demand. Unscrupulous traders could write notes at will without the assets to redeem them so the banks issued their own – the first banknotes.

Still there was a need for coinage for smaller debts but the coinage suffered badly. Coins could be debased by alloying with cheaper metals, “clipped” (. small bits clipped off the edge and later sold as bullion) or otherwise converted to less than their face value. Isaac Newton, master of the British Mint, was proud of the integrity of Britain’s coinage. Its coins were of a constant defined weight and purity. He carried out constant war on the clippers and had the edges of new coins “milled”. This was a series of serrations around the edge of a coin that showed clearly if a coin had been clipped.

He also set a financial milestone in place – for the first time he set a fixed value on gold and also fixed the ratio of the value between gold and silver. He based all British coinage on this value. This was called the Gold Standard and is still in use today in some countries. By the late 1870s most countries had adopted it.

The third episode details the prosperity that followed. With a fixed amount of gold being worth a fixed amount of money anywhere in the world, trade prospered.

One incident detailed in the episode shows how well the French understood the system. In 1797 they landed a small force of a couple of thousand men on the coast of Wales. Some were soldiers but most were prisoners released so they could take part in this adventure. Their object was not to conquer but to destabilise England. Fearing invasion, the public went into panic and there was a run on the Bank Of England to convert the less-trusted banknotes to gold. Its gold reserves fell dangerously low. People didn’t trust the new paper money or even silver coin as much as they trusted gold. That the attempt so nearly succeeded only reinforced in the bankers’ minds the need to acquire even more gold.

The growth in trade continued. Britain as one of the world’s biggest manufacturers took a lot of the world’s gold to pay for their trade goods. New gold discoveries helped – California, Alaska, Siberia, Australia and the biggest of them all, the Rand in South Africa. South Africa was not an alluvial goldfield like California. A large amount of money was needed to dig some of the world’s deepest mines and design new equipment and techniques. Still the demand for gold continued. It was as if every ounce of gold mined created a demand for more.

This prosperity was interrupted by World War 1. Britain particularly suffered since it had to import much of its war materiel and this had to be paid for with its gold reserves. The Government, obsessed with returning to the gold standard as soon as possible after the war, tried raising interest rates and lowering wages. This would give it more money with which to buy back gold. The policy caused much hardship among the population and led to general strikes and a change of government.

In the United States, now the richest nation in the world, the situation was much the same. After the War they imposed a system on the rest of the world that saw the U.S. dollar as the main trading currency and it was tied to America’s gold reserves. This made the dollar unresponsive to currency movements and the United States, like many other countries, went into Depression rather than lose their gold. Hoover, the President, was accused of valuing “metal over men”. Roosevelt’s “New Deal” when he became President was to liquidate some of the reserves and use the money on a massive infrastructure building program. With people back in work the Depression petered out. It is this principle that allowed countries like Australia to move quickly out of the most recent Recession. With the advantage of hindsight and no obsession with a gold standard they took fewer years to do it

The U.S. had also passed a law prohibiting the private collecting of gold. This forced trust in the paper dollar and gradually lessened peoples’ reliance on gold as a hedge in times of trouble. During Richard Nixon’s Presidency the U.S A. went off the gold standard completely. The world financial system did not collapse as predicted by the bankers. Still the demand for gold continued. Apart from the jewellery industry a new use for gold developed in the thriving electronics industry. It would not tarnish so was ideal for plating onto connectors such as those in computers. Finally the decorative but otherwise useless metal took a place in the world of industry. It is also being tested for possible medicinal use in treating rheumatoid arthritis.

The story finishes in a little South American town called Santa Filomena. There an abandoned gold mine was reopened by the local people and still produces a few ounces of gold a week. The process they use is unmechanised, dreadfully labour-intensive and dangerous, but they persevere because the demand for gold is always there.

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