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Why is gold valuable?

If you're considering investing in gold, then you may ask yourself why is gold valuable? Understanding why gold is valuable is of course important to forecasting how much it could be worth in the future.

Ultimately, gold is valuable because throughout human existence people have been willing to accept it in exchange for something else. Supply and demand is a human constant, and gold is no exception. As a species we have always considered gold valuable and that remains the same to this day, but for even more reasons. Consequently, governments, banks, and individuals, have used the noble metal as a store of wealth and a means of exchange for millennia.

The initial value of gold is dependent on its physical properties, and scarcity. For thousands of years these physical properties have been exploited for jewellery and coins, and this ancient legacy has given the yellow metal a unique place in human psychology. It's density feels incredible when held in the hand, the lustre, the fact it is soft and can be easily shaped, and the fact it doesn't corrode over time. All of these properties made gold valuable to early civilisations.

In the past two centuries however, we have discovered a huge range of additional uses for gold in a number of industries, and this has served to only make gold even more valuable.

‘Gold is valuable because, throughout

human existence, people have been willing to

accept it in exchange for something else.’

Historically, gold’s physical properties made it the ideal metal for use as currency. It is non-reactive, portable, non-toxic and fairly rare. It is abundant enough to create coins, but scarce enough that not everyone can find it and make their own gold coins. Gold’s unique properties also mean it cannot be manufactured or counterfeited; nothing compares to the real thing.

From ancient times, until the end of the Gold Standard in 1971, gold has in some form provided a basis for international trade. After this, the value of currencies became established purely by their relationships to each other; international trade is now conducted in fiat currencies, and are unrelated to the gold price. Despite this, national central banks and other large financial institutions hold many metric tons of gold reserves as a physical store of wealth.

Why is gold so expensive?

Gold shares many properties with other precious metals; such as copper, silver and platinum, but is unique in others. The colour, lustre and density of gold are just some of the unique properties that set gold apart, and it has commanded a high price amongst precious metals for centuries.

Some of the reasons gold is valuable.

This high value can be explained by gold’s physical properties and history, plus what can be described as a unique 'Goldilocks' nature. It is scarce, but not too scarce for use as coinage. It has many useful applications, but not too many to be totally consumed by – and governed by – industrial demand. It is stable, and virtually indestructible, but not so stable that it cannot be easily melted down and worked into other forms.

On the financial markets, over long periods, gold investments hold their value, even while other assets like stocks crash. Because of this, gold provides a long-term safe haven, and is a useful hedge or counterbalance against other investments. It is held in huge amounts by government and banks, but is also beyond their control. As an investment, physical gold has little counterparty risk, and gold bullion – gold bars and gold coins – are also highly liquid, and are easily exchanged around the world.

While gold was initially valuable due to its societal status for jewellery and coins, its newer industrial applications have only increased its value. This means gold has an inherent value; even if we stopped using it for jewellery, coins, and decorative items, gold would still have it's place in society and would therefore still be valuable.

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