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Compasses are used for various reasons since the 2nd century BC, and for navigation in particular since the 11th century.
When did people realize that the reason it indicated North have something to do with an intrinsic property of Earth?
In short, when was it discovered that Earth possess a magnetic field?

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As it turns out, it was already known by some philosophers from the 1200s that certain types of rocks naturally tend to rotate to point north. However, they had no idea why: For instance, it was generally thought that compas needles were attracted by the Pole Star.

Some more serious work on compasses (e.g. discovering the 'magnetic dip') was first done by Norman, near the end of the 16th century. He, however, also didn't understand that compasses rely on the magnetic field of the Earth itself. The first to grasp this was William Gilbert, also known as the father of magnetic science. In his primary academic work, published under the name De Magnete, Magneticisque Corporibus, et de Magno Magnete Tellure or, more briefly, De Magnete he concluded - based on experiments carried out on a model planet - that the Earth itself can be regarded as a giant magnet (as is reflected in the title itself), correctly attributing it to the iron core of our planet. Thus, William Gilbert was the first to realize that Earth possesses an intrinsic magnetic field.

As an aside, it is interesting to note that Gauss was in fact the first to accurately measure Earth's magnetic field and fit it to spherical harmonics in order to understand its variations.

Source (aside from Wikipedia).

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  • $\begingroup$ Thanks for the clarification about the link :) Great answer, anyway! $\endgroup$ – plannapus Oct 29 '14 at 15:42
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    $\begingroup$ For those interested, De Magnete can be found on the Project Gutenberg. $\endgroup$ – plannapus Oct 29 '14 at 15:56
  • $\begingroup$ A well referenced answer +1. $\endgroup$ – Jasser Oct 29 '14 at 16:51
  • $\begingroup$ @plannapus I added a better source. $\endgroup$ – Danu Oct 30 '14 at 19:39
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To add to Danu's answer,

According to New Zealand's GNS webpage Discovery of the Earth’s magnetic field, from William Gilbert's work concluding that the planet acted as a giant magnet, it took several centuries to determine the actual mechanism as to why the Earth behaves this way, due to it being found that

It gradually became apparent that the obvious theory, that the earth is composed of magnetic rock, was incorrect, as rocks lose their magnetism at the temperatures found at any significant depth within the earth.

It was in the 20th century the widel accepted intrinsic property for the magnetic field became clearer, with

Larmor suggested in 1919 that a self-exciting dynamo could explain the magnetic field of the earth, as well as that of the sun and other stars, but it was Elsasser and Bullard in the 1940s who showed how motion in the liquid core of the earth might produce a self-sustaining magnetic field.

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  • $\begingroup$ Thanks for the answer! For those (like me) interested, Larmor (1919) can be found on archive.org. $\endgroup$ – plannapus Oct 29 '14 at 15:52
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Danu's answer is true for European cultures. But according to https://www.gns.cri.nz/Home/Our-Science/Earth-Science/Earth-s-Magnetic-Field/Discovery-of-the-Earth-s-magnetic-field but the Chinese were 1200 years ahead of them.

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