Gold has long been a highly desire and valued commodity. In fact it has been valued for more than 3000 years. Indeed, tradition has firmly linked it to the financial world as a currency and standard for currency. Let’s take a look at some of the reasons for why is gold valuable?
Gold, relatively rare, is somewhat difficult to find. It is also a time-consuming and expensive process to extract it in large amounts. This remains true today and that’s with the use of advanced machines. In the pre-industrial era people had to work with far more primitive means of extraction. The supply of gold is therefore entirely dependent on what is mined.
Gold is also valued for its looks. It is the only metal with such a unique color. It has long been used for decorative ornaments. For example gold jewelry is desirable all over the world. The fact that it resists corrosion well also contributes to its value.
Gold is held by a lot of banks and investors. At the moment, one ounce of gold sells for more than $1000. It has long been a major part of the monetary systems of the world. This is true throughout thousands years of history. And yet gold does not produce earnings or dividends. Let’s look at the key reasons for why is gold valuable.
As societies grew and developed, it became necessary to have a standardized form of currency for trade. The more traditional method of bartering goods for services and vice versa was no longer as useful. Over a long period of time gold became the most valued form of currency.
Gold’s physical properties have made it more valued over silver and copper in terms of worth. Although both silver and copper have their value. Silver is very useful for industrial uses. Copper exists in great quantities and has well-known electrical conductivity.
Gold, however, is highly durable. It cannot be destroyed by water because of its anticorrosion properties. Time also has little effect on it. We can see this from antique coins for example. It also only melts at a minimum temperature of 1945.4° F.
Another key physical property of gold is its malleability. Gold can be easily spread without cracking. It is also highly ductile which makes it easier to stretch without breaking. It’s color and shine also add to its appeal. It is arguably the most physically attractive of the 118 elements of the periodic table.
For these reasons gold works well as money. Interestingly though the amount of gold found to date would only equate to 2 Olympic-sized swimming pools.
Gold has had high purchasing power throughout history. In the time of Christ, one ounce of gold was enough for a Roman citizen to clothe himself in rich finery. Historians have established that in 400 BC, one ounce of gold could buy 350 loaves of bread.
Since 1933, when gold was taken off the gold standard, the value of gold has been on an upward trend. The fact that gold is now freely traded on the stock market has increased its worth and purchasing power.
But perhaps the most important role of gold is its ability to retain its value over time. Gold is ultimately a form of insurance against crisis and inflation.
Gold is not required to be backed by banks, governments or brokerage firms. This is not the case when it comes to paper money which can drastically lose its value. This is also true for other paper assets, including stocks and bonds. Direct ownership of gold, however, means a guarantee for its worth. Keep in mind, however, that it’s worth can fluctuate.
form of currency
Gold, if you have it, is easily converted to cash. And its value is consistent. Banks and other financial institutions are unable to inflate the prices for gold. Moreover, it cannot be accurately counterfeited. These are all key financial traits that make gold valuable.
Gold is also easy to move around – it doesn’t take a lot of it to reach high value. If you split gold up, it’s value remains the same. This is not the same for diamonds which will generally decrease in value when split up.
long term investment
People have different opinions about keeping gold as an asset. A lot of financial industry workers would probably suggest investing in stocks. Other people point to history which shows gold has always retained its value. Fluctuations in the worth of gold, however, have happened. For example, in 2001 one ounce of gold was worth $260. It then peaked in September 2011 at almost $2000 for one ounce.