As the gold price explodes upward, it reminds us of bygone historic eras. During the violent swings of financial history, gold emerges not only as a precious metal but as a steadfast companion for investors weathering the storms of war and chaos.
Table of Contents
- Newton and the Birth of the Gold Standard
- The Driving Force behind the British Empire
- The American Revolutionary War
- Napoleon’s War and the Rothschilds
- Jesse Livermore and the Great Depression
- Winston Churchill and Sir Henry Strakosch
- Final Reflections
Newton’s Legacy: The Gold Standard (1717)
Our journey begins in 1717 with Sir Isaac Newton, whose genius laid the foundation for the gold standard. Newton became the Master of the Royal Mint in 1696 in England, and was tasked with stabilizing the english currency, which had been plagued by counterfeiting and fluctuations in value.
The Financial Revolution in 18th-Century London
In the early 1700s, London was rapidly becoming the epicenter of financial revolution. The Bank of England was founded in 1694, just a few years after the Glorious revolution in 1688. After that, the crown lost power. Instead, the parliament gained control. Consequently, new ideas in money and loans helped the city to grow. Government bonds and credit made trade easy. London became a busy money hub.
Paving the way for British financial dominance
At the Royal Mint, Newton worked during a time when money reform was necessary. Britain was expanding its empire and often had to pay for wars. The new financial system made it easier to borrow and trade. Furthermore, people began to trust the money. This gave Newton the chance to experiment and act on bold ideas.
Birth of the Gold Standard
In 1717, Newton, then “Master of the Mint”, effectively laid the groundwork for the gold Standard. Whether by design or accident remains a matter of debate. Nevertheless, he set the exchange rate of silver too low compared to gold. By fixing the gold-to-silver ratio at 15 to 1 in favor of gold, silver coins gradually went out of circulation. This gave rise to what would later be known as the “Gold Specie Standard.” This was the beginning of a monetary system that would transform the world for centuries to come. It also gave rise to the gold-to-gilver-ratio, which is used even to this day, to calculate the value of precious in relation to each other.
The Driving Force behind the British Empire
The Gold Standard changed the British economy. It kept prices stable and stopped fake money. People trusted the pound, as it could always be redeemed and swapped for gold. This along with fixed exchange rates helped to elevate the pound to world reserve currency. Further, it gave Britain power in trade. The gold-backed system turned London into the epicenter of international finance and fueled an era of industrial expansion, economic and population growth.
Gold as a Safe Haven: Bridging the British Empire’s Dominance and Revolutionary Turmoil
As Britain grew stronger, gold gave the Empire an underpinning of stability. A source of wealth and a safe choice in times of war, but this was not just true in Britain. Across the Atlantic, the American colonies were also awakening to the power of gold .
How money printing depletes gold reserves when on a gold Standard
When the money is backed and exchangeable in gold, a country must hold enough gold to match the same amount of money that it prints. If the government does not add more gold, but print much more notes, each note will be worth less. For example, if 200 notes are backed by 200 ounces of gold, each of these notes is redeemable for one ounce of gold. But if the government prints 200 more notes but not adding any extra gold, each note now stands for only half an ounce gold. This makes the money weaker. People, especially foreigners in other countries, may lose trust in that currency. They might ask to trade their notes for real gold. As more people do this, the gold reserves begin to sipper out of the country.As a result, gold begins to flow out of the country to meet these demands. Because when people lose trust in money, they ask to get their gold instead. Under the gold standard, gold must be used to settle trade debts, and it is redeemable for money. If a country buys more from outside than it sells to outside countries, it runs a trade gap. Consequently, this is paid in gold. If the country prints too much money, prices go up. Goods cost more. As a result exports fall. At the same time, imports cost more too. Which makes the trade gap worse. Also, foreign nations, seeing the weaker money, ask for their gold in return. As a result, gold flows goes out of the country. The more money printing, the faster it leaves. Creating a vicious cycle. Consequently, it can lead to a deep crisis.
Case Studies: Gold as a Safe Haven During War and Economic Crises
War and the American Revolution (1775-1783)
During the American war for independence, american visionaries like John Hancock and Alexander Hamilton would protect their wealth through the use of gold and silver. Consequently helping them to achieve financial power and influence.
John Hancock, whose fortune came from shipping, saw how blockades and economic instability threatened his business during the war. Therefore, he diversified his wealth into gold and silver. This move protected his wealth from the inflation and devaluation, allowing him to retain his influence and financial power throughout the Revolution and beyond.
Further, Alexander Hamilton, an american visionary, statesman and later founding father, had witnessed the volatility of paper money firsthand. He saw gold as the only reliable store of value. When the money printing that funded much of the war led to runaway inflation and the eventual collapse of the Continental Dollar Hamilton invested his modest savings into gold and silver, which protected and elevated his wealth. His belief in a gold-backed currency and advocacy for a gold backed system laid the foundation for the stable financial system that would later come. In the long run it helped elevate the rise of the American empire.
The Napoleonic Wars (1803-1815)
During the Napoleonic Wars gold proved essential for investors seeking stability as the tumult echoed across Europe. Investors like the Rothschild family, banking magnates of the time, saw opportunities in this chaos. They strategically invested their money into gold and built great wealth that withstood the chaos of war.
In London, Nathan Rothschild understood that gold held its value when other money lost their value. He built a fast and smart system to move gold across borders. This helped Britain to pay for the war. It also let Nathan Rothschild buy gold at low prices from weak nations.
The Rothschilds used a creative system to move gold across borders and buying low in weak markets and selling high in strong demand, One of their best trades came after they heard of Napoleon’s loss at Waterloo. Nathan used this news on the London Stock Exchange to grow their fortune. Consequently by the war’s end, the Rothschilds were among the richest families in Europe.”
The American Civil War’s post War period and “Black Friday” (1869)
As America was torn apart by the Civil War (1861–1865), gold showed its strength again. James Fisk and Jay Gould became well-known for their attempt to control the gold market during the “Gold Ring” of 1869.
The government had printed a lot of paper money during the war, called Greenbacks, which wasn’t backed by gold, and speculation was scommon. In early 1869, Fisk and Gould secretly began to buy large amounts of gold at about 130 dollars an ounce in hopes that the price would rise. Their plan worked for a while, and the price of gold reached all the way up at 160 dollars on September 24, 1869 (Black Friday).
However, their scheme started to fall apart when President Grant realized what they were doing. On Black Friday, the government stepped in and sold four million dollars worth of gold. This caused the price to drop quickly, and their plan failed. Despite this, Fisk and Gould still managed to get out and made a lot of money.
World War I (1914-1918)
The outbreak of World War I brought unprecedented economic upheaval, but for Bernard Baruch, a veteran financier and presidential advisor, gold became stability. As war destabilized global markets and drove European nations to print more money, Baruch recognized the inevitable inflation. Anticipating the rising demand for gold as countries abandoned the gold standard to fund their military efforts, he strategically shifted his investments into gold, seeing it as the ultimate safe haven. He also diversified into gold mining stocks, capitalizing on the surge in demand for physical gold.
Baruch’s impeccable timing paid off as gold prices soared, protecting his fortune while many others suffered during the war. His strategy of investing in both gold and gold-related assets allowed him not only to preserve but grow his wealth, demonstrating his financial acumen. Even through the post-war inflationary period, Baruch’s wise positioning in gold solidified his legacy as a trusted advisor and one of the era’s most respected financiers.
The Great Depression (1929-1939)
During the Great Depression, stock trader Jesse Livermore saw an opportunity in gold. Famous for predicting, among others, the 1929 crash, where he made millions by shorting the market, Livermore’s instincts led him to gold as the crisis deepened going further into the early thirties.
While governments printed more paper money, weakening its value, gold remained a strong and reliable asset. Therefore, Livermore didn’t just invest in physical gold; he also put money into gold-related assets, like mining stocks and companies that extracted precious metals. This allowed him to profit from both the rising price of gold and get leverage to the booming gold industry.
While the economy crashed and banks failed, Livermore’s gold investments helped to elevate his wealth, while millions of Americans lost everything. Livermore not only kept his fortune but grew it by trusting gold as a safe haven. His actions and use of gold during the Great Depression is a prime example of how precious metals can offer both safety and opportunity during times of crisis.
World War II and Sir Henry Strakosch: Gold as a Safe Haven
As World War two unfolded, Sir Henry Strakosch, a banker and advisor, turned to gold to protect his money. He understood that gold would keep its value even when the world was in crisis. In Europe, many countries turned to money-printing to pay for the war. Consequently their currencies would lose in value.
Strakosch knew that gold did not lose its value like paper money. It was safe from inflation. Therefore, he acted quickly. He moved his money, and his clients’ money, into gold. But he didn’t just buy gold. He also kept it in different countries. This way, it was safe from war and government control through diversification. By storing gold in neutral places, he made sure it stayed both safe and easy to access.
Strakosch and Churchill
Strakosch’s was the chairman of the South African Chamber of Mines which gave him a deep understanding of the gold market. Further, he knew how gold’s supply and demand worked, which helped him understand the market. While others lost their wealth during the war, Strakosch grew his.
By the end of the second World War, Strakosch’s wealth was stronger than ever because of his gold investments. This shows how gold can protect and increase wealth during tough times. Strakosch also had a big impact outside of finance. In the 1930s and 1940s, he helped the struggling Winston Churchill to find the money he needed to stay in power. This showed how Strakosch combined financial skill with political insights to make sure his investments matched the world order.
Gold as a safe haven through political and financial chaos
Throughout history, gold has proved to be a safe haven during times of political and economic turmoil. During the Napoleonic Wars, gold prices soared as Europe became unstable. Investors saw it as a symbol of safety in a chaotic world. The same happened during the First World War, when governments turned to money-printing and economies struggled. Gold kept its value strong as a reliable store of value.
Today, we see similar patterns. Tensions are big around the world. From war in the Ukraine to conflicts in the Middle East and rising tensions between America and China things are shaky in global markets. Once again, gold is stepping in to offer protection as the gold price explodes upward. As new powers rise and the world changes, gold remains a steadfast companion to those seeking protection from political and financial chaos.
Gold as a Safe Haven in Times of Crisis
Gold has long been a financial lifeline, protecting everyone from the elite to the ordinary citizen during times of crisis. Governments print money which make them collapse entirely during times of war. While gold endures and maintains its worth.
Gold’s scarcity and durability makes it a strong protector of wealth. This was clear during the many hyperinflations of History. From the 1920s German hyperinflation to the Hungarian and Argentinian hyperinflations, and more recent crises. Those who owned even small amounts of gold or silver would protect their savings when money lost value because of money-printing. This was true during the Napoleonic Wars to World War One to the Great Depression. History shows that gold protects wealth when governments and national currencies fail.
Final Reflections
Looking back on the legacy of Newton’s Gold Standard, we see the powerful role gold has played in stabilizing economies and safeguarding wealth. The bond between dominant nations and gold exists through the centuries, both as a store of value and a medium of exchange. Today, in a world facing fresh challenges, from wars in Europe to the Middle East and power struggles between major powers, gold’s role as a safe haven and wealth creator is as relevant as ever before.
