Gold gold gold - why we love it, and why it's driven us mad

So the Royal Mint has started selling gold directly to the public. Welcome to the casino!

Many of you interested in the small-size wafers and ingots that the Mint is flogging will buy the metal because of its safe-haven reputation. Gold, you say to yourselves, is the sturdy craft that will withstand the gales of contemporary financial life, sailing through the sea of storm-tossed currencies and landing on the far shore with precious capital intact. Don’t bet on it. If you like a flutter for nostalgia’s sake, fine. But if you think you’re buying real money, forget it. That was yesterday.

For a long time, gold was money. When gold coinage was standardised in Asia Minor in 635 BC, the metal was transformed. At a stroke, it became the must-have form of wealth. Standardisation elevated gold from the scrappy realm of barter, where traders had to haggle over weight and purity, to the relative stability of currency. The popularity of gold money swept the Mediterranean world, democratising wealth and providing the foundation for modern commerce.

Scroll ahead to the Middle Ages. Europe’s biggest gold supplier was a near-mythical African ruler called Mansa Musa. He reigned over the gold-rich Mali Empire, a surprisingly urban civilisation along the Niger River. Mansa Musa built mosques and palaces in cities such as Timbuktu and Djenné. In the imperial capital, Niani, he received tributaries in an audience hall with windows framed in beaten gold.

Sometimes called the Lord of the Mines, Mansa Musa glittered in the European imagination. The Catalan Atlas of 1380 depicts him enthroned in the heart of Africa, a black king in gold regalia. In one raised hand he brandishes a fist-sized nugget.

In 1324 this medieval master of gold made his hajj – the pious Muslim’s pilgrimage to Mecca. Arab historians record that his retinue numbered 60,000 soldiers and 12,000 slaves. An 80-camel train plodded through the desert under a huge burden of precious metal. As he passed through Cairo, the emperor’s lavish alms poured so much bullion into the market that he crashed the gold price in the Mediterranean for a decade.

Yet at about this time, a decline in European gold-mine production was sparking a crisis in the Continental coin supply and, by the next century, explorers were ranging far and wide to find new sources of gold. The Portuguese scoured the coast of Africa, looking for an entry point to Mansa Musa’s empire. Meanwhile, the Spaniards sailed west, on what became the world’s first gold rush – a campaign of conquest so sanguinary and grotesque that it beggars the imagination.

With the 16th-century’s weapon of mass destruction (Toledo steel), a handful of Spaniards butchered their way through Bronze Age armies, laying in the dust two of history’s most enchanting civilisations: the Aztec and the Inca.

Picture the Inca god-king, Atahualpa, seated on a throne of solid gold. A gold-and-emerald necklace gleams on his chest and gold braid glitters in his hair. On his forehead is the Inca’s scarlet tassel. Courtiers in chequered livery sweep the ground before him. Eighty nobles in blue robes carry his silver litter into the little square at Cajamarca, in the Peruvian Andes, to meet Francisco Pizarro. Eight thousand men under arms accompany the Inca. The rest of his army – 70,000 soldiers hardened by the battles of a civil war – are camped no more than a mile or two away.

Yet when the 168 Spaniards opened fire with hidden cannon, and unleashed their great swords, easily cutting through the copper armour of the native troops, it might as well have been a column of tanks that burst upon the Inca. Before they garroted Atahualpa, the Spaniards extorted from his people a stupefying ransom. Along the royal road from Cuzco, the Inca capital, came gold cups and vases and delicate golden statuettes of llamas, gold birds and trees, and a device like a fountain spewing gold. A solid-gold sacrificial altar weighed half a ton; the golden fountain, 700lb.

A few choice objects were sent to the Spanish court; the rest was melted. The Spaniards shovelled every ounce straight into their furnace at Cajamarca, with the king’s notary jotting down the weights as it went in. The booty weighed five tons, not including Atahualpa’s 190lb throne. But in a twinkling they transformed the ravishing artefacts of a culture into what gold meant to them: cash. In one month alone the Spanish netted 1,326,539 gold pesos, or about £200 million in today’s money. That’s why museums have so little Inca gold: the Spaniards swallowed the lot. Who knows? Buy one of the Mint’s pocket‑sized bullion lumps and you may be getting all that remains of some tiny golden llama.

As an element, gold is immutable: it will not tarnish or corrode. Dug out of the ground after centuries, its lustre is as fresh as a newly minted coin. And in the 500 years since Atahualpa’s demise, gold has lost none of its allure in the West. It has shone brightly in the minds of our economists, with many countries backing their currencies with gold, in a form of financial governance called the gold standard.

As it existed immediately after the Second World War, when the United States owned 70 per cent of the world’s monetary gold, the “gold standard” described a system in which many currencies were pegged to the US dollar, and the dollar alone was convertible to gold. Under that system, holders of large dollar deposits could convert them to gold at an established rate – $35 an ounce.

It was a regime that lasted until Richard Nixon came to office, when America’s trade deficit was growing by the day, as Americans bought foreign goods but foreigners declined to buy American. Not needing US dollars, foreign central banks began to cash them in. Bullion flooded out of the US Treasury’s repository at Fort Knox, Kentucky, and off to the vaults of other nations. Like a headstrong child who doesn’t like the way the game is going, Nixon changed the rules, and on live television one Sunday night in August 1971, he ended the gold convertibility of the dollar. From that Sunday forth, the paper you held was all you were going to get. Those who wait for the gold standard’s return cherish a threadbare hope. As money, gold is dead for good.

Cut loose from government control, the gold price was free to find its own level. Traders call gold the “emotive metal,” and since then the emotion often driving it has been fear. That’s what happened in the 2008 banking crisis. Frightened by disintegrating currencies, investors set the gold price on a trajectory that did not peak until it brushed $1,900 an ounce. Now, after a long decline, the gold price is stirring again, and goldbugs smell another run. Perhaps stashing a few of the Mint’s new bars under your pillow isn’t such a bad idea after all.

Like a great movie star, gold is always waiting for the right script. We don’t know what it will be until it appears. Disaster? War? Dismay? Then suddenly there she is again, striding down the red carpet as the flashbulbs pop! And we can’t get enough.

Matthew Hart’s latest book, 'Gold: the Race for the World’s Most Seductive Metal’, is published by Simon & Schuster