Gold ores are mined from rocks in underground and open pits all over the world. China has emerged as the biggest miner, digging up 420 metric tons in 2019, according to the U.S. Geological Survey. Other sources include Russia, Australia and the U.S.
Toxic cyanide solutions are used to dissolve gold, extracting it from crushed rocks, before miners partially refine the metal into impure bars known as doré. These are sold to specialist refiners, which transform doré into gold that has close to 100% purity with either gaseous chlorine or electrolysis.
Refiners play another crucial role: recycling.
Since gold is chemically inert and malleable, it lasts for thousands of years and can be endlessly refashioned. Around one-quarter of demand is met with recycled gold, according to the World Gold Council. Of that, 90% comes from jewelry. Recycling has picked up as people have sold bullion to cash in on rising prices.
Is gold a commodity or a currency?
Both. Gold is a commodity in that it derives its value, in part, from its use in products like jewelry. Banks that are active in the physical market trade gold on their commodities books, and the futures market in the U.S. is regulated by the Commodity Futures Trading Commission. Gold is treated like any other commodity on banks' balance sheets under the Basel III regulatory guidelines, designed to avoid a repeat of the 2008-9 financial crisis.
Gold is also a currency. For millennia, the metal has functioned as a store of value, unit of account and medium of exchange.
"The Egyptians were casting gold bars as money as early as 4000 B.C., each bar stamped with the name of the Pharaoh Menes," the financial historian Peter Bernstein writes in "The Power of Gold: The History of an Obsession."
Bullion played a foundational role in the monetary system from 1717, when Isaac Newton, master of England's Mint, established a price ratio between gold and silver, to 1971, when President Nixon ended the convertibility of dollars into the precious metal.
Though gold stopped underpinning exchange rates after the "Nixon Shock," the metal still plays a part in currency markets. Central banks in emerging markets have, for instance, boosted their gold holdings in recent years in an attempt to diversify their reserves away from dollars.
"It is more a currency than a commodity," said Dr. O'Connor. "Everything else, to one degree or another, gets used up and doesn't come back into the market. Gold just stays there."
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Write to Joe Wallace at Joe.Wallace@wsj.com