The yellow metal has long been seen as a solid investment. Unlike other assets, gold retains its value in times of financial turmoil and natural disasters. Gold is a dense metal that is malleable and ductile. It also has high density and high electrical conductivity. It’s naturally occurring in the Earth’s crust in trace amounts and can be found in karst formations, ores, and alluvial deposits. Throughout history, gold has been a stable store of value and a reliable currency and used to settle contracts and pay for goods or services.
Even today, gold is the fifth-largest reserve asset held by central banks around the world. So what exactly makes gold so valuable, does it have any intrinsic value? Or is the reason just that we decided to value it? In this blog post, we’ll take a look at the reasons why gold has always been valuable – and likely will remain so for centuries to come.
The Rarity of Gold
The rarity of gold is one of the main reasons why it is so valuable. There is simply not enough gold in the world to satisfy the global demand and in fact, the combined mined supply of gold around the world totals just 3,000 metric tons a year. Why is there such a low supply of gold? Well, unlike other commodities, gold is not abundant in the ground. It is actually one of the rarest elements on earth. There are about 40 million metric tonnes of gold in the earth’s crust, but only about 2% of that is easily accessible and economically viable to mine.
Historical Value of Gold
Another reason why gold is so valuable is its historical value. Gold has been valued as a precious metal since ancient times due to being a scarce, non-reactive, easily distinguishable, portable, and non-toxic metal. It is also resistant to corrosion, unlike metals such as iron and copper. These properties are vital for a metal that is used as a store of value.
Gold has been used as a way to store value by individuals, governments, and investors ever since. Gold has been a store of value and a currency for many different civilizations across the globe for thousands of years. As civilizations grew and trade increased, gold was used as a measure of value in commercial transactions. It was also used as a system of payment between governments and their subjects. Gold has been used as currency for so long that there is no record of when it was first used as a medium of exchange. Some researchers believe that gold may have been used as currency even before the invention of coins.
Also compared to other metals, there are few applications for gold that are necessary for daily life and industrial use. This means that there is little demand for the metal outside of its use as a store of value.
Cultural Importance of Gold
Another reason why gold is so valuable is its cultural importance. For thousands of years, gold has played an integral role in many cultures around the world. This cultural significance has made gold a highly valued item in many societies. There are several reasons why gold is so culturally important. Researchers argue that gold has been so important to humans due to one of its unique chemical properties we mentioned, which is being non-reactive. In addition, gold is an easily distinguishable metal due to its color and shininess which makes it suitable for jewelry and decorations.
Investment Demand for Gold
A fourth reason why gold is so valuable is investment demand. Many investors choose to add gold to their portfolios because it is a safe asset with very low risk. Unlike stocks, bonds, and other investment vehicles, gold doesn’t fluctuate much with the economy. In fact, gold has historically performed well in times of financial and economic turmoil.
Investors turn to yellow metal when they want to protect the value of their assets. Gold has a low correlation to stocks and bonds. This means that gold does not move in the same direction as other assets. When other assets like stocks, bonds, and real estate fall in value, investors turn to gold as a safe haven.
Recently, investors have also turned to gold as an inflation hedge against soaring global inflation. Many investors believe that gold can provide protection against economic uncertainty. This drives up the demand for gold, which increases its price.
Inherent Properties
As we just mentioned gold is valuable because of its unique inherent properties. Five important chemical properties of gold that it makes valuable are:
- resistance to corrosion
- non-reactive
- non-toxic
- dense
- relatively low melting point
While pure gold is soft and doesn’t have any special properties, it is commonly alloyed with other metals like silver and copper. Why is this important? The addition of other metals gives gold different properties. This makes it ideal for coins and jewelry.
The purity and hardness of gold make it a very durable metal. It also allows the metal to be easily shaped and easily combined with other metals. The melting point of gold is much lower than other metals such as platinum and palladium. This makes it easier to shape the gold to use for various reasons.
The malleability and conductivity features make gold ideal for a wide range of applications. They also allow the metal to be alloyed with other metals to create durable and long-lasting products.
Conclusion
The main reasons are the rarity of gold, its historical value, cultural importance, and its inherent properties. As long as humans are around, the demand for gold will possibly remain high.
An accomplished financial analyst and writer, holds a Master’s degree in Finance from the University of Exeter, bringing his expertise to guide readers through the world of financial markets and investment strategies.
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