"In the beginning the universe was created. This has made a lot of people very angry, and has been widely regarded as a bad move." — Douglas Adams (The Restaurant at the End of the Universe).
AT the dawn of time, symbolically referred to as "The Big Bang" (and which we Hindus refer to as the "churning of the ocean of milk" for similar reasons), unimaginable forces were unleashed which enabled the creation of the elements — among them, gold.
Gold does not rust and so was one of the first metals to be "discovered" by humans who assumed it had magical properties and fashioned ornaments out of it. Those beliefs, coupled with the fact that gold was scarce, made the metal valuable. Alchemists tried to create gold (and made some useful discoveries in the process), but were unsuccessful.
Modern chemists know how to create gold and have in fact done so. It's pretty simple when you think about it. Simply take a hydrogen atom and keep adding protons. When you've reached an atom with 79 protons, you've got gold.
The trouble is that the amount of energy that's required to create gold is so tremendous that it's just about impossible to do so on any scale larger than very carefully controlled laboratory experiments which are themselves more expensive than the gold produced as a result. Just about the only place where gold does get created in large quantities these days is when some star decides to go supernova. But we'll talk about that some other time.
By the late 19th Century, gold had become the basis of the world monetary system and entire economies had sprung into existence as a result — California and the Witwatersrand among them.
But the international gold standard broke down in 1914 — in part because of its inherent lack of liquidity — to be replaced by a gold-bullion standard, which in turn was abandoned in the 1930s. In the decades following World War II, international trade was conducted under a gold-exchange standard where nations fixed the value of their currencies to some foreign currency, which was in turn fixed to and redeemable in gold.
South Africa was among the countries which could back its currency in gold, but most nations fixed their currencies to the US dollar. By the late 1960s, a severe drain on US gold reserves led to the introduction in 1968 of a "two-tier system". (In the official tier, the value of gold was set at $35 an ounce; in the free-market tier, the price was free to fluctuate according to supply and demand.) At the same time, the International Monetary Fund (IMF) created "Special Drawing Rights" as a new reserve currency. (Anyone remember the difference between apartheid's "financial rand" and "commercial rand"?)
Finally, under a 1976 agreement IMF members accepted a system of controlled floating rates and took steps to diminish the importance of gold in international transactions, including elimination of the official price.
Since then, gold has had no future. The US dollar, British pound sterling, Japanese yen, German Deutschemark and the French franc became the new world standards. But the notion of gold-as-currency continued — mainly because all of the world's major players had themselves held large stockpiles of gold up until the collapse of the gold standard.
Those countries are now shedding that baggage. By selling off its gold and using that money for "Third World debt relief", the IMF is getting rid of large stockpiles of a commodity that has no intrinsic value other than as jewellery or as an electrical component.
As a result, the gold price plunged to its lowest levels in 20 years last week. And that fall is going to continue. The effect on our economy will be devastating. Over the past week, many of our mines employing thousands of people have become unprofitable. They will shut down. We're in deep trouble.
Forget the regional political squabbles that have occupied our minds over the past week. It's time to pull together.