18th Century


Gold price: 4.35 (4.6s.11d) per troy ounce fine

Gold/silver ratio: 1:16 (Spain), 1:14.7 (London), 1:14.2 (India), 1:9 (China)

Annual gold production: 350,000 ounces

The unofficial gold standard

In the first half of the 18th century, gold came back centre-stage as production doubled with discoveries in Brazil, and Britain moved onto an unofficial gold standard as gold coin replaced silver as the main circulating currency. The arrival of the gold standard was not a conscious policy, but due simply to over-valuation of gold at the mint, now under the direction of Sir Isaac Newton, who believed that market forces would soon create a premium for silver again as the shortage of silver coin in circulation became acute. This did not occur because the real premium on silver was in India and China, whither most silver went. So a fundamental shift in British coinage took place a hundred and fifty years before most other nations went deliberately onto the gold standard after 1870, following the gold rushes in California and Australia.

1701 High price of gold attracted almost 300,000 ounces of imports for coining in Britain, including some gold from China brought in by the East India Company (a profitable venture given the difference in the gold/silver ratio between the two countries).
1702 Casa de Moeda (mint) set up in Rio de Janiero following further gold discoveries in Minas Gerais and Matto Grosso province. The mint handled almost 30,000 ounces of fine gold in its first two years, from which it struck 77,760 coins. By 1704 output in Brazil was approaching 200,000 ounces and rising. The gold was sent as coin from Rio mint or unrefined to Lisbon. There it was made into the Portuguese coins moedas de ouro or 'moydores', as they were known in England which took much of the gold.
1713 Flow of moydores (weight 0.33 oz/10.8 grams) into Britain increased; in the next four years the mint in London coined over one million ounces of gold into guineas.
1717 Sir Isaac Newton set the historic gold price of 4.4.11d per fine ounce that lasted two hundred years (see box).

Isaac Newton's gold policy

Sir Isaac Newton, as Master of the Mint, was asked to report to Parliament on the price and relationship of gold to silver, in view of the huge inflow of gold, while a large quantity of silver continued to flow out to India (the East India Company shipped over three million ounces of silver that year). Newton noted that the value of gold coin being made at the mint was thirty times that of silver. His answer was to write down the value of the guinea to 1.05 (1.1s.0d) which was equivalent to a price of 3.89 (3.17s.10d) per standard ounce of 916 gold in which the guinea was minted, equivalent to a fine gold price of 4.25 (4.4s.11d). That famous price was to remain for two hundred years, except during the Napoleonic wars when cash payment in gold was suspended. It was the stability of that price as a benchmark until the early 20th century that gave gold its best credential. This was not an official declaration of a gold standard. Indeed, Newton's intention was the opposite; to lower the gold price to make silver more attractive. It did not work. Gold was still over-valued at the mint and that was what people brought in for coining. Gold was the preferred coin in Britain; silver went to India and China.

1718 New discoveries in Brazil at Cuyaba in Matto Grosso and later at Itabira in Minas Gereas in 1720, at Goyaz in 1725 and on the Rio Sarare further west in 1734 kept up the level of output. As one area was worked out, another was found. Production fluctuated between 350,000 and 500,000 ounces annually. Britain was the major destination with up to 200,000 ounces a year being converted to guineas. Portuguese moydores also circulated widely in southern England. This regular flow of gold did much to get the gold standard firmly established.
1720 Bank of England's gold reserve was 235,000 ounces; by 1730 it was almost 500,000 ounces; and over 900,000 ounces by 1740. This is the first example of a central bank building up a gold reserve against note issue. All notes were payable in gold coin.
1731 Mocatta appointed as official broker in gold and silver to the Bank of England, a role the firm held exclusively for over a hundred years. The Bank's own Bullion Warehouse (later the Bullion Office) opened in 1732. Almost all gold coming into the country was lodged and weighted there. London was now the premier gold market.
1744 Discovery of gold at Berezovsk near Ekaterinburg in the Urals began a renaissance in Russian mining; output was 2,000 ounces annually. The mine was taken over by the Czar, who had the gold minted.
1750 Annual world output 750-800,000 ounces (see box).
1750 Main gold producers
(troy ounces)

1759 Large inflows of Brazilian gold to London, where mint coined over 500,000 ounces. Gold picked up in Lisbon by the Falmouth packet boat, which carried 185,000 ounces, plus British naval ships. Lisbon-Falmouth packet alone took an average 200,000 ounces to England annually in 1760s.
1763 A run on gold, triggered by the collapse of several Amsterdam and Hamburg houses which had given each other too much credit against unsecured bills, drained the Bank of England's gold stock to under 100,000 ounces, as gold guineas flowed out to Amsterdam. The market price for standard gold (916 fine) went over 4 an ounce, instead of the normal 3.89. But the Bank did not suspend cash payment of its notes.
1766 Significant decline in Brazilian output, especially in Minas Gereas province. By 1770 world output was down to 650,000 ounces, of which Brazil was 350,000 ounces.
1774--7 Major recoinage of gold coin in Britain during which the mint struck over five million ounces in new guineas, of which 85% came from melting old guineas, and the balance from foreign gold coins and bars. No silver was recoined.
1776 The American War of Independence put heavy demand on Bank of England gold stocks to meet costs of the war. In 1779 over 400,000 ounces were bought (two-thirds of world output) and coined for war expenses in North America.
1785 Bank of England's warehouse changed its name to the Bullion Office; it was dominated by John Humble, who worked there from 1773-1833. Humble and the new partnership of Mocatta & Goldsmid as the Bank's brokers in effect ran the London market; Cox, Merle & Co. were approved as official refiners (an early start to the good delivery list).
1789 The French Revolution triggered a major flow of gold coin and bars from Paris to London. The Bank of England opened accounts for Louis d'or coins. Over 100,000 ounces of French gold came into the Bank within six months of the storming of the Bastille while, in 1791, over 400,000 ounces were smuggled from France, taking the Bank's total stocks to two million ounces.
1792 Brazilian output was down to 200-250,000 ounces, and little now came to London.
1793 War with France put a severe strain on the Bank of England's reserves. With French dishoarding over and little arriving from Brazil, London stocks plummeted.
1795 US mint in Philadelphia struck the first $10 Eagle gold coins at 916 fine with a fine gold content of 0.515 ounces (16 grams): a $5 half Eagle also made. Mint used 3,500 ounces.
1797 The Bank of England's gold stocks, drained by war payments in gold to European allies, were down to 1 million (235,000 ounces) against liabilities of 15.5 million. Gold was vanishing at 100,000 a day. On Sunday 26th February 1797 cash payments in gold against bank notes were suspended. It was twenty-four years before notes could be freely redeemed for gold coin. The unofficial gold standard was in limbo.
1799 Gold discovered in the foothills of the Appalachians in North Carolina.