Why Is Gold So Valuable? History's Timeless Metal (Updated for 2023)
Why Is Gold So Valuable? History's Timeless Metal
Discover the fascinating reasons behind gold's enduring value across millennia of human civilization
Introduction
For thousands of years, gold has functioned as a store of wealth that sees its value climb in times of economic or societal unrest. Gold jewelry has been a sought-after luxury good since before the dawn of the first civilizations. Understanding why gold maintains its value helps investors make informed decisions when they add gold to their portfolios.
Gold has seen its value increase as time goes on, with current gold prices reflecting both its historical significance and modern applications. Gold's non-correlation to stocks and many other assets make it a financial safe haven during market downturns or "black swan" market shocks. Gold's modern value is augmented by growing industrial and medical demand, making its physical properties indispensable in everything from space probes and electronics to medical implants and cancer treatments.
Table of Contents
- Gold is very rare - understanding scarcity
- Gold jewelry valued for its timeless beauty
- Gold coins were the first sound money
- Gold acts as a hedge against uncertainty
- Gold's special properties and industrial applications
- Gold is vital in modern technology
- Gold helps make aeronautics possible
- Gold use in medical field saves lives
- Gold's artistic appeal is timeless
1: Gold Is Very Rare
Gold is one of the rarest elements on Earth. This rarity is responsible for much of gold's value. As a chemical element, it is atomic number 79 on the Periodic Table of Elements.
Gold's Rarity in Earth's Crust
Instead of being measured in parts per million like other metals, gold makes up only four parts per BILLION in the Earth's crust.
Mining Reality
A gold mine that recovers six grams of gold for every ton of rock it mines is considered commercially viable. This works out to more than five tons of rock being dug out, crushed, and treated to get one single ounce of gold. Can you imagine the expense? No wonder gold is so valuable!
How much gold is left in the world? Of course, gold mining companies dig where gold has already been found. But it still takes a massive amount of digging to recover commercial quantities of gold. Is gold rarer than diamonds? Indeed it is. When investors purchase gold bullion, they're acquiring one of Earth's scarcest elements.
2: Gold Jewelry Is Valued For Its Beauty
Gold has been prized for its beauty and rarity since prehistory. There is evidence to believe that gold, not copper, was the first metal our ancestors fashioned into items. Its yellow color and luster made gold stand out to early humans. Gold's low melting point also helped it play a role in the earliest preindustrial technology.
Varna Civilization
The earliest known examples of gold jewelry were wrought from native gold in the prehistoric Varna civilization along the Black Sea, predating Sumerian and Egyptian gold jewelry by more than 1,500 years.
Pharaoh's Gold
Jewelry's importance as a status symbol reached its zenith in the extravagances of the Egyptian pharaohs, establishing gold as the ultimate symbol of wealth and power.
Modern Jewelry Market
Jewelry remains the largest single use for mined gold (~55% in 2021, according to the World Gold Council), including alloys like white gold mixed with palladium or silver.
Found in a nearly pure form in nature, this bright, easily worked metal quickly became treasured for its beauty. With the development of large, centralized societies, gold took on a financial aspect as well as an ornamental one. Gold is eternal in some sense because it has the highest corrosion resistance of any known metal. As a result, gold became one of mankind's first non-perishable assets and long-term stores of wealth.
Emerging Markets
In emerging markets where billions live with no access to banks, purchasing gold jewelry is still the predominant method of storing individual wealth.
Global Demand
China and India, with the world's two largest rural populations, account for more than half of global jewelry demand.
Investment Considerations
While jewelry tastes may change, traditional chunky jewelry in rural areas is favored more as a store of wealth than as a fashion statement.
3: Gold Coins Were the First Sound Money
The next step in gold's evolution as store of wealth (and in the advancement of civilization as a whole) was the invention of the gold coin. Gold's combination of high value and small size made it an excellent choice as a means of exchange in early history, especially in long-distance trade.
Historical Milestone
The famous King Croesus of Lydia minted the world's first pure gold coins in approximately 550 BC. For the first time, the world had pieces of gold of a uniform weight and purity, made by a trusted authority. This idea quickly spread, expanding trade between cities and kingdoms, and making Lydia the first mercantile empire.
Despite gold's excellence as currency, each bar or nugget had its own weight and purity, which had to be determined each time it was traded before standardized coinage. Gold jewelry had similar problems.
Pre-Coin Era Challenges
- Variable weights and purity
- Time-consuming verification
- Limited trade efficiency
- Trust issues between parties
Gold Coin Revolution
- Uniform weight and purity
- Trusted authority backing
- Expanded international trade
- Foundation of commerce
For seven and a half millennia afterwards, monetary gold fueled unprecedented levels of commerce and international trade. Gold's lower melting point made it easier to fashion into coins than other metals like copper, aluminum, or lead. At the same time, gold and gold-backed currencies enforced fiscal discipline on governments. As recently as the turn of the 20th century, people were suspicious of any government-issued paper money that could not be redeemed for gold or silver.
1930s: Government Gold Seizure
It wasn't until the 1930s that gold ceased to circulate as money. During the Great Depression, people flocked to banks to exchange paper notes for gold coins, pulling millions from circulation and worsening deflation. In 1933, the US government not only removed gold coins from circulation but confiscated privately-owned gold. Since then, the US dollar has depreciated approximately 95%.
Before government confiscation of gold, you could have traded $100 in paper money for five $20 "double eagle" legal tender coins, each containing 0.9675 troy ounces of gold. That 4.8375 ounces of gold worth $100 in 1933 would be worth over $10,000 today at current gold prices – a perfect example of how gold preserves wealth against inflation!
4: Gold Acts as a Hedge Against Uncertainty
One significant endorsement of gold's value is the fact that the world's central banks continue to buy and hold gold as part of their official reserves. This has accelerated as more central banks prepare for another economic crisis. Central bank gold purchases hit a 50-year high in 2018 and continue at elevated levels.
High Liquidity
Between $85 billion and $130 billion of gold trades every single day (spot market, options, and futures). This makes gold easy to buy and sell whenever needed or desired.
Safe Haven Asset
Physical gold is the only asset that does not suffer from default (counterparty) risk. Gold protects wealth against inflation, government fiscal and monetary policy, and sudden geopolitical shocks.
Financial Insurance
Gold plays a traditional role as a diversifier in investor portfolios, mitigating losses in times of financial stress. Like any insurance policy, buying gold can only protect wealth if purchased before it's needed.
Portfolio Hedge
Gold is an efficient portfolio hedge, thanks to its negative correlation to most assets. In good times, gold rises moderately. In bad times, gold often rises faster than other assets fall.
The role gold plays on the balance sheets of the world's largest financial institutions is the same role that it plays with individual investors. When you invest in gold, you're following the same strategy employed by central banks worldwide.
| Market Condition | Stock Performance | Gold Performance | Portfolio Impact |
|---|---|---|---|
| Economic Expansion | Strong gains | Modest gains | Steady growth |
| Market Volatility | High volatility | Lower volatility | Reduced portfolio swings |
| Economic Crisis | Sharp declines | Strong gains | Loss mitigation |
| Currency Weakness | Variable impact | Typically positive | Currency hedge |
Currency Hedge Benefits
Another investment use for gold is as a currency hedge, especially between the dollar and emerging market currencies. The extra volatility of emerging market currencies and the expense of carrying traditional currency hedges can be a serious drag on returns. Gold works as a currency hedge simultaneously for multiple currencies, reducing the need to run a hedge for each currency pair.
5: Gold's Special Properties Have Many Industrial Applications
On the Periodic Table of Elements, gold is shown as the symbol Au, referencing the Latin aurum. Its atomic number is 79, grouping it with the "noble metals." Its chemical properties distinguish gold from alkaline metals such as lithium. Science has shown that gold is commonly found in industrial settings. It's an extremely useful material beyond its applications in jewelry, finance, and art.
Historical Applications
- Gilt domes protecting buildings from elements
- Gold leaf ceilings protected from soot
- Roman ruby glass using gold salts
- Decorative and protective finishes
Modern Energy Applications
- Gold nanoparticles increasing solar cell efficiency
- Improved hydrogen fuel cell performance
- Micron-thick layers in modern windows blocking heat
- Enhanced clean energy generation
Heavy Machinery Uses
- Gold plating in jet engine components
- Corrosion resistance in harsh environments
- Extended component lifespan
- Improved performance reliability
Non-investment uses for gold were discovered early in history. Gold also has a long partnership with glass. In Roman times, gold salts were used to produce a distinctive red shade of glass known as ruby glass. Incredibly thin layers of gold less than a micron thick are used in modern windows to block heat from the sun.
In energy production, gold nanoparticles have greatly increased the efficiency of photovoltaic cells used in solar panels, as well as improved the efficiency of hydrogen fuel cells. This has enormous potential for supplying clean energy that is not dependent on sun or wind. Understanding these diverse applications helps explain why gold prices reflect both investment and industrial demand.
6: Gold Is Vital In Technology
Gold has grown exponentially in importance in technology, especially since the birth of the integrated circuit and the Information Age. While copper and silver are both more efficient electrical conductors than gold, that efficiency degrades as the connections tarnish and corrode.
Superior Conductivity
Gold connectors do not tarnish or corrode. This makes gold the preferred choice for plating electrical connectors and in integrated circuits. Gold's properties as a tarnish-proof metal in electronics is especially valuable in situations where the circuitry will be inaccessible, most prevalent in the aerospace sector.
Electronic Components
Gold is essential in smartphones, computers, and countless electronic devices for reliable connections that won't degrade over time.
Circuit Protection
Integrated circuits rely on gold's corrosion resistance to maintain signal integrity in critical applications.
Aerospace Applications
Gold's reliability in inaccessible locations makes it indispensable for spacecraft and satellite electronics.
The bottom line: large quantities of gold, silver, and copper are needed each year for a wide range of electronic components in our everyday technologies. This industrial demand adds fundamental support to gold's value, complementing investment demand from those who add gold to their portfolios.
7: Gold Helps Make Aeronautics Possible
Gold has played a major part in the aeronautics industry since the dawn of the Space Race. Gold-covered protective surfaces reflect heat and radiation, protecting spacecraft and satellites from solar damage. These precautions are necessary because there is no atmosphere in space to carry heat away from surfaces. Gold foil protects materials in space from getting hot in the first place.
Space Protection
Gold-covered surfaces reflect heat and radiation, protecting spacecraft and satellites from solar damage. Even NASA's Mars rovers needed gold protection to regulate sensitive instrument temperatures.
Astronaut Safety
The gold coating on space suit helmet visors reflects harmful infrared radiation while allowing astronauts to see, preventing the suit's interior from overheating.
Mechanical Components
Gold's low shear strength and resistance to "cold welding" made it the obvious choice for coating moving parts in the harsh space environment.
Engineers designing the first satellites and space vehicles needed a lubricant for moving parts that could survive the harsh cold, heat, and radiation of space. Traditional lubricants and greases break down nearly immediately in this environment. Gold's unique properties made it the ideal solution for these critical applications.
8: The Use of Gold in the Medical Field Saves Lives
Gold's use in medicine and science has expanded greatly from the days where it was only used for tooth fillings and wiring dentures. Gold's ability to treat arthritis was first discovered in 1929. Gold's anti-microbial properties make it the choice for coating implants, especially in infection-prone areas such as the inner ear.
Prosthetics Enhancement
Gold is alloyed with titanium used in prosthetics to reduce the chance the body will reject them. New gold-titanium alloy (β-Ti3Au) is four times harder than titanium alone.
Infection Fighting
Gold compounds serve as a base for experimental medicines to combat antibiotic-resistant "superbug" infections, offering hope against resistant bacteria.
Cancer Treatment
Gold nanoparticles are used in innovative "photothermal therapy" to destroy tumors from the inside using laser heating, without radiation.
Diagnostic Tools
Gold nanoparticles enable rapid malaria testing kits that are cheaper and detect the disease earlier than previous methods.
Medical Breakthroughs
A rapidly expanding medical field is the use of gold nanoparticles to fight cancer. Gold nanoparticles are used to deliver "genetic payloads" to suppress tumor growth. Other specially-constructed gold nanoparticles can slip out of the bloodstream into tumors, but not healthy cells. The World Health Organization reported that more than 300 million malaria testing kits using gold nanoparticles were sent to impoverished areas in Asia and Africa in 2016.
In a more mundane area, gold is also used to make pregnancy tests! Its medical applications are constantly growing, adding another dimension to gold's value beyond traditional investment uses. This expanding medical demand provides additional support for those tracking gold price movements.
9: Gold's Artistic Appeal Is Timeless
Jewelry was not the only use ancient peoples had for gold. The shining magical metal that never tarnishes was a natural medium to depict the gods and the afterlife in art. For thousands of years, much of the artistic use of gold was for religious purposes. Pharaoh's masks, golden Buddha statues, chalices and crosses are notable examples of how gold elevated religious art.
Religious Art
Gold was used to depict gods and the afterlife, with pharaoh's masks, Buddha statues, and religious chalices showcasing gold's spiritual significance.
Illuminated Manuscripts
Gold leaf was used to accent and beautify icons, frescoes, and illuminated manuscripts across many religions, hammered to micron thickness.
Contemporary Art
Gold continues in modern art, gilding statuettes, painting frames, and even as edible gold leaf in gourmet desserts, maintaining its luxury appeal.
Gold leaf is gold hammered to a thickness of mere microns. Gold leaf was used to accent and beautify icons, frescoes, and illuminated manuscripts in many religions. It continues to have a place in art, gilding statuettes or frames for paintings, as well as accenting paintings themselves in a modern twist to medieval iconography.
Another quirky "artistic" use for gold leaf is its inclusion in food – most often as a coating for desserts. This demonstrates gold's continued appeal across all aspects of human culture and luxury.
Gold: Valuable In So Many Ways
When did gold become valuable? Its intrinsic value has been recognized throughout human history, tracing back to ancient times. Gold has served as money and a store of wealth from the oldest ancient civilizations and empires, through the Middle Ages, and into the 19th and 20th centuries under the gold standard. Through all that time, it was also the ultimate symbol of wealth and eternal beauty in artwork and jewelry.
Physical gold's special properties made it the ideal metal for these important uses. This is still true today, yet the applications are always expanding. Integrated circuits, medical implants, and the coating on an astronaut's helmet are a few of the uses for gold that were unimagined by mankind 50 years ago.
Future Outlook
Based on trends in 2025 and beyond, what new problems will gold solve 50 years from now? Here's what remains the same: As it has since that first prehistoric man discovered pretty rocks in a streambed, demand for gold, and its value, will continue to grow. Understanding these fundamentals helps investors make informed decisions when they invest in gold for their portfolios.
From its scarcity and beauty to its technological applications and role as a safe haven asset, gold's value stems from multiple sources. Whether you're interested in tracking gold's current value or considering precious metals for portfolio diversification, gold's multifaceted importance ensures its continued relevance in the modern world.