In this article we will examine the effects of gold related large scale events on the European economy.
To keep this article from expanding to much, we shall largely focus on Europe based precious metals and system shock, with relevant non European input. We look at the role of and effect on gold largely. Before there was also a role for gold as trade currency, however Romans controlled most of the world (in)directly, so it was partly for within their own empire: Internally, rulers can dictate whatever you want, just look at the utterly lacking intrinsic value of paper money and online bank accounts.
Mansa Musa Hajj
In 1324 the King of the Mali Empire Mansa Musa (the richest man to ever life, with exact wealth sometimes listed as indescribable), which is located in Western Africa, and at the time a hub for gold production and included several trade centres, went on pilgrimage to Mecca. During this pilgrimage his entourage (think a small city worth of people and animals, dressed in gold and fine fabric) spend so much gold, that the local economies suffered severely for over a decade as the Cairo* (a very rich and important hub at the time) gold price plummeted. Please note that everyone received gold; ruler and beggar alike, meaning that the metal lost a huge amount of value.
Now we need to remember that not much earlier, Europe started to reintroduce gold coins, ducats and florins, with gold coming from Africa as Europe itself barely has any. It is likely because of this excessive gold entering Cairo that Europeans became fully aware of the Mali gold, though they were already using it, just not knowingly. Many centuries later, there still is the myth of a golden city, somewhere hidden in distant lands. So by spending/donating vast amounts of gold, Mansa Musa was able to put his kingdom on the map (there are cases where he himself with a nugget is depicted) and potentially boost trade. This also gives a good idea of global trade at the time; Mali mined gold and traded it for whatever they wanted, where the Europeans needed gold to do much trading.
Carolus V and South America
With Carolus V, we mean the Holy Roman (XL version of current day Germany) Emperor Carolus V, also the King of Spain and thereby owner of the gold deposits in South America, which is what this part is about. He opened up mines, resulting in a immense inflation as he brought huge amounts of gold and silver, the material of most coins, to Europe. This completely flooded the supply side, resulting in a period of high inflation of over a century.
Please be aware that high inflation now means something considerably different from back then; it was below 2% a year on average, at most a 1,5% average. This stil is unusual over a prolonged period of time because a gold based economy needs not have inflation, as money supply is limited and governmental debts (the reason we have inflation is to keep these sustainable) were kept in check by reducing the amount of gold/silver in a coin: Thereby you still had the exact same amount of gold, just more coins. So a annual genuine inflation of potentially 1,5% was pretty high, considering the possibility for precious metals to become investments or adjust mining rates, both of which methods to keep prices stable.
Gold Standard
Originally created to build a solid global financial infrastructure, it became problematic in a few decades: A guaranteed gold price seems like a good idea, but lacks deep thought and planning. The simple reason for this negative review from you correspondent is that a fixed asset, of limited supply, cannot cover a globally used currency, as demand will 100% surely grow beyond any practical storage solution or mining capacity. However, it does create many opportunities to trade on exchanges and did support the rise of the US dollar as the global currency, so there was a point and, for the creators, positive effect.
The result of this event, is that virtually no currency is immediately tied to any precious metal (coins are minted on base metal, those made with precious metal are used as an investment or collectible), giving rise to the possibility of unlimited inflation, as bank notes have no genuine value beyond their monetary use, and online bank accounts aren`t even physical. Naturally, there also was a point at which gold reserves were sold, with a very low gold price in pursuit.
Please note that this system was not entirely new; notes, more like coupons, were actively traded and used as currency, whose sole function was that you could trade them in for x amount of silver/gold containing currency (generally regularly used coins). The only thing the Gold Standard did was extend this by making all notes convertible for gold and at a fixed price, reducing volatility. A priori, there was also a way to convert to yellow metal; simply exchange your bank notes for a coin that was made of gold in the desired currency, pretty much everyone still used gold coins back then.
Coin clipping
This one is more many small shock amounting to a big and genuine problem: Since time immemorial, it was custom to remove small amounts of silver from, full blown genuine coins (coin clipping), which was enabled by there not being a clear end or standardised surface of any coin: Coins were either hand struck, several times, creating a fairly close but not 100% exact image most of the times, sometimes it was rather obscure. Later on, there was a machine that pressed hard on a small bar, which was more a labour savings than a quality improvement; small amounts of silver, hanging beyond the stamp, would actually still be connected to the coin. Therefor, nobody really noticed when you removed a small piece (round shapes were the norm, but not achieved al that often). Also, silver does wear when used, so small differences in weight were not always something that attracted attention.
The problem was that this made coin`s pure silver weight unreliable, creating a need for weighing and presumably quite a few disputes. This undoubtably resulted in genuine conflict, among citizens, and lost revenue. Not a lot in each case, but it accumulates over the centuries. Note that is has been possible ever since we started using silver/gold coins, centuries before the year 0 (Gregorian calender). Some cultures actually traded primarily in bits of scrap silver; though these were mostly from other sources, such as looted silverware in case of Vikings.
In 1698 Isaac Newton fixed this problem by adding a pattern to the edge of a coin (the part between the front and back). Thereby making it fully visible if the coin was clipped. Thereby ending this ancient problem and enabling smoother trading. In this case you could say that the solution was the shock, because organised gangs lost a source of revenue (the silver had to be sold/melted somewhere) and the need for weighing became obsolete, saving a lot of time.
Modern day silver shortage
A honourable mention, as it is not historical: For the past few years, silver demand has outstripped production and there is no reason to believe this is going to change. Electrification based demand (power production and electric motors+cables), needs a huge amount of silver, while we have a limited supply on Earth. There also are constraint based on environmental concerns and feasibility: Opening a mine right next to a city and below a forest is virtually impossible in rich countries, and some location are extremely expensive to mine based on their location, such as the poles (very cold and remote) or the bottom of deep oceans. Both latter options also have big environmental issues, making them even more pricey to mine.
