Why Has Gold Always Been So Valuable?

Key takeaways

1. Gold has unique physical properties that make it ideal for trade, keepsakes, and various industries.
2. Reputation matters, and gold has been recognized as a store of wealth, a symbol of authority and power, and an object of treasure for thousands of years.
3. Today, gold finds extra value as a hedge against inflation and the whims of fiat currency.

Why Is Gold Valuable?

Gold has been a store of value for thousands of years. The reasons behind gold’s enduring value tend to fall into one of three categories: its properties, reputation, and diversification. Some of these are objective qualities, but others are quite subjective.

Whatever the case is for each person, the bottom line is that buying gold remains popular today for many of the same reasons that the ancients did, and its value is certain to remain for the future.

Elemental properties

The first set of reasons why gold retains its value relates to the unique physical and elemental properties that the metal possesses. Many of these attributes are well-known to be emblematic of gold and a few other known elements. Here are some of the properties that make gold valuable:

• Rarity: One of the most obvious sources of gold’s value is its rarity. It is not easy to find, so any gold that is found is prized as an acknowledgment of its difficulty to produce. It’s the reason that gold is always more valuable than, say, iron.
• Appearance: Gold bears a characteristic sheen that everyone knows. The sparkle and glimmer of the shiny yellow metal is mostly unmistakable, even at a distance. Thus, it is of great value to jewelers and fabricators who make objects designed to draw attention, like rings, necklaces, and commemorative items.
• Malleability: Gold defies the common notion of a metal because of its malleability – its ability to be shaped easily into precise forms and formats. This quality alone was valuable to early jewelers, as they could shape it with their limited toolkits or, if it’s pure enough, by hand.
• Conductivity/resistance to corrosion: Although gold is a highly conductive metal, the reality is that its conductivity falls well short of the conductivity found in silver and copper. However, the value of gold appears when its conductivity combines with its excellent resistance to corrosion. Delicate machinery and appliances, like those made and used in the electronics, aerospace, and medical industries, often use gold because corrosion would be extremely problematic to the function of these devices.

Reputation

The second set of reasons for gold’s value derive from its reputation as a valuable commodity. Despite the circular nature of the fact, gold is valuable, in part, because it has always been valuable. At least a portion of its status as a precious metal is due to our forebears marveling about its shininess.

• Money: Gold has been used as currency or to make currency for thousands of years. The ancient Lydian civilization (in modern-day Türkiye) was well-known for its wealth due to the great amounts of gold within its borders. In fact, the Lydians, under the guidance of King Croesus, used a naturally occurring alloy of gold and silver called electrum to create some of the earliest coins.
• Status: Gold often signified royalty, wealth, nobility, or desirability in both real life and mythology. Regal crowns and scepters often used gold as their basis. Jason and his Argonauts pursued a goat with a fleece of gold in Greek myth. The image of a golden calf in the Bible appears to illustrate the folly of worshipping the tangible and material over the eternal and spiritual.
• Currency standard: Many countries, including the United States, have pegged the value of their currencies to a specific quantity of gold. The gold standard established in law that gold itself was valuable and equivalent to the medium of trade in the land. In some cases, quantities of gold were perfectly acceptable as tradeable objects themselves.

Diversification

More recently, gold has assumed a different significance. Because there are no world currencies that remain tied to the gold standard, gold has become the primary way to diversify one’s portfolio and protect one’s intrinsic wealth.

• Hedging asset: Gold’s price and value move inversely with many traditional investment vehicles. Thus, it can provide a counterbalance against the excesses of stocks, funds, and other assets that rely on the health of the economy. If things are going great, gold doesn’t really gain much value, but it doesn’t lose everything. However, in bad times, gold helps mitigate the losses that investors experience with mainstream vehicles.
• Safe haven: It is important to understand that gold never truly becomes worthless, regardless of what is happening with the economies or currencies of the world. In fact, since we’re only expressing the value of gold in terms of those currencies, you could argue that gold stands outside of the economy. Thus, whenever economic conditions start to look bleak, many investors rightfully turn to gold to weather the storm and protect their wealth.
• Inflation-proof: Inflation is the addition of extra currency units into an existing money supply without increasing the productivity of the economy itself. Thus, the value of each currency note dilutes with the addition of each superfluous unit. The ability to inflate currency stems from its intangibility, as it is simple to print new money. However, gold’s rarity and tangibility mean that you cannot simply make it artificially. Thus, it is impossible for assets kept in gold to fall prey to the diluting effects of inflation.

Gold’s Value Compared to Other Precious Metals

Gold’s reputation, history, and status as a diversifying asset have propelled it to become one of the most valuable precious metals in the world. However, it is not the most valuable precious metal in the world – that honor goes to rhodium, which is significantly rarer than gold but retains substantial industrial demand.

Here are the best-known precious metals, along with their value:

How Does Gold’s Rarity Contribute To Its Value?

Gold is undeniably rare. For every billion kilograms of the Earth’s crust, only four of them are gold.

However, if rarity was the only factor, gold would not be anywhere near the rarest element. That honor goes to radioactive astatine, of which scientists estimate only a single gram to be naturally present in the crust.

As it happens, gold’s level of rarity is much like Goldilocks’ preference: just right. It is rare enough to be a challenge to procure, but abundant enough to serve as a medium of trade.

Can Gold Ever Lose Its Value Completely?

It is nearly impossible that gold would ever lose its value completely. The numerous reasons for its preciousness listed above mean that, even if it faded for some applications, it would still be favored as a high-status item.

The only way that gold might lose its status would be if a massive discovery of it changed the entire equation of its rarity. In other words, if someone discovered a deposit or vein that exceeded the total amount of gold ever mined and it could be easily recovered, it might cause a shift, but such an occurrence is exceptionally unlikely.

Related articles: 

• • 100 years of gold history
  • Bullion price vs. spot price
  • Why do gold prices rise?
  • What causes gold prices to drop?

Final Thoughts

Gold has been a valued commodity for all of man’s recorded history. Its value derives from its signature appearance, its elemental properties, tradition, and its most recent status as a hedging asset.

Gold is going to retain its value for the foreseeable future. There is no reason to worry about investing in gold, as it is, in many ways, the safest thing you can buy and be confident about keeping your wealth safe.