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Why Is Gold So Valuable?

Mon Oct 26 2020

 

As time passes, especially in 2020, a lot changes. But one thing that hasn't changed much is the value of gold.

 

Perhaps best known for its use in bars, coins, and jewelry, gold is immune to rust, decay, and corrosion. But these physical aspects are not what makes the metal so special. (Consider that silver also shares some of gold's valuable qualities, but doesn't hold nearly as much value.)

 

Let's take a deeper look at how gold holds value, and why it's seemingly immune to nearly any financial crisis.

 

The Rich History of Gold

 

In order to understand why today's gold retains high value, we'll need to take a look back on its rich history. Although the exact point in history when gold was discovered is unknown, its brilliance and resistance to tarnishing made the metal ideal for jewelry, and its rarity made gold a symbol of royalty and glamour even in its earliest forms.

Gold Sets the Price

 

In 2600 BCE ancient Mesopotamians would make some of the first pieces of gold jewelry for both human wear and structural aesthetic. Later in 1223 BCE, Egyptian Pharoah Tutankamen's tomb would be constructed almost entirely of gold.

 

As a result of gold's use for only the most luxurious applications, the metal is largely responsible for the human concept of value and currency, with the first gold coins dating back to 700 BCE. Eventually, gold and silver coins would replace bartering and make trades easier.

Meticulous Mining Practices

 

The earliest signs of gold mining operations date back to 3600 BCE in Egypt, but operations were primitive. Romans were the first civilization to develop technology for more efficient mining processes, including hydraulics and water wheels. They were also the first to develop a technique for roasting gold, which separated it from other ores and made the metal more pure and valuable.

 

Ancient mining operations often used slave and prisoner labor, but the tedious process of procurement made gold's value increase even more.

 

Maintaining Value in the Modern Golden Age

 

Although gold's history is primarily noted in more primitive civilizations, the social construct of its value has followed mankind all the way to modern times. If gold ever had a downtime, it saw a renewed spike in interest during the California Gold Rush. After gold was discovered in the Sacramento Valley, thousands of miners flocked to the area hoping to strike a lifetime's worth of riches. Although most did not acquire enough gold for a new luxurious lifestyle, nearly $81 million of gold was mined from California.

 

The Gold Rush represented a landmark period in history; from a psychological perspective, it proved once again that humans are avid participants in the flock mentality. It also gave us a look into the true longevity of the value of gold. Even if an economy collapses and the value of a dollar no longer exists, people will still place gold at a high value.

 

As Investopedia puts it, "Gold can exist as something that is quantitative and tangible while embodying the qualitative and ephemeral."


Why Do Gold Prices Fluctuate?

 

Like many other products, the price of gold moves as a result of fluctuating supply, demand, and investor behaviors. However, many studies have shown that gold prices have positive price elasticity, meaning that value will continue to increase as demand does.

 

Historically, gold has felt like a safe haven to investors in times of economic crisis, ultimately driving up its value and further indicating that the value of gold is immune to economic conditions. However, gold prices are still susceptible to fluctuations as a result of the worldwide commodity market.

 

It's also important to note that gold supply can only ever increase; every ounce of gold mined still exists on Earth as it can't be "used up."

The Bottom Line

 

So, why is gold really expensive? Because people believe it is.

 

While its anti-tarnish, no-rust qualities do make the metal useful in numerous applications, there's nothing particularly outstanding about gold. However, it's almost guaranteed that gold will continue to hold its value no matter how economies fluctuate, so it's definitely not a bad idea to keep some around for a rainy day.

 

Source: https://www.thomasnet.com