Gold has been highly valued and desired throughout human history. Nearly every civilization and culture has placed great importance on gold, using it as currency, for jewelry and decoration, and to display power and status. But why exactly has gold become so synonymous with wealth over so many centuries and across so many diverse societies? There are several key reasons gold is considered precious and remains a primary symbol of affluence today.
Scarcity
One of the main reasons gold is considered valuable is its rarity. Gold is a precious metal that is relatively scarce in the earth’s crust, with global reserves estimated at around 54,000 metric tons. Unlike other more common metals like iron or aluminum, the limited global supply of gold makes it more valuable. The difficulty of extracting gold from the earth further limits the supply.
| Metal | Abundance in Earth’s Crust (parts per million) |
|---|---|
| Gold | 0.004 |
| Iron | 50,000 |
| Aluminum | 82,000 |
As seen in the table above comparing gold to other metals, gold is extremely rare, with less than 0.005 parts per million abundance in the earth’s crust. This scarcity contributes to its value.
Durability
Gold is also prized for its durability. It maintains its luminous shine and luster and does not oxidize or corrode over time. This resistance to degradation makes gold useful for jewelry, coins, and other objects meant to last for centuries. Gold artifacts dating back thousands of years, from ancient Sumerian and Egyptian times, still maintain their beauty and quality today. The durability of gold relative to other metals adds to its value.
Malleability
Another unique property of gold that adds to its worth is its malleability. Gold is very soft and the most malleable metal. Just one gram of pure gold can be hammered into a thin sheet covering more than 1 square meter. Gold can be molded, stretched, and shaped into almost any form. This plasticity allows gold to be used not just as coins and bars, but for jewelry, decorative objects, dental fillings, electronics, and more. The malleability of gold enables many of its practical uses.
Luster
Gold has an attractive, warm glow and shine. The radiant yellow hue and metallic luster make gold jewelry, coins, and decorative items beautiful to behold. Gold’s shine does not fade or tarnish over time either, adding to its appeal. The distinctive glossy look of gold captivates people and enhances its worth as a material used for important symbols, jewelry, and art.
Rarity
In addition to its natural physical properties, gold drives its value through rarity. Because annual mine production accounts for just a small fraction of total above-ground stocks, gold is considered a rare commodity that rises in value when demand outpaces supply. This rarity and restriction of new gold coming to market creates scarcity that increases gold prices.
Difficult to Counterfeit
Gold is difficult to fake or counterfeit compared to other materials. Its unique density, color, illumination under ultraviolet light, and other properties make identifying real gold relatively straightforward. This resistance to counterfeiting helps gold retain its value and makes it a trusted medium for coins, jewelry, and other valuables that need to be verified as genuine.
Universal Acceptance
Throughout much of human history, gold has been recognized as a universal currency accepted everywhere. The universal appeal of gold as a currency and symbol of wealth transcended borders, cultures, religions, and language barriers. This broad acceptance globally established gold as a primary store of value. Gold facilitated trade and commerce between diverse civilizations.
Portability
Gold is also prized for being transportable and concealed. Gold coins, bars, and jewelry can carry tremendous value while taking up little space. This portability of gold as a store of wealth enabled people to transport wealth securely over distances, across borders, or to hide wealth. Gold’s high worth per unit weight makes it convenient for portability as a medium of exchange and store of value.
Divisibility
Gold can also be divided into smaller units without losing its worth. Gold bars and coins can be minted into various sizes, maintaining their inherent value. This divisibility makes gold a flexible unit of account and exchange. Even small pieces of gold, like jewelry, carry inherent worth. The divisibility of gold allows people to exchange it in smaller convenient units.
Demand
In addition to its intrinsic properties, gold derives value from demand. It has been coveted as jewelry, currency, and as a representation of status for centuries across societies. Because people widely accept and desire gold, it commands value. Strong demand persists today from investors, central banks, industries, and consumers, especially in major economies like China and India. Consistent demand drives up gold’s worth.
Safe Haven Asset
Gold acts a safe haven for investors in times of geopolitical or economic uncertainty. In crises, gold often holds its value better than stocks, bonds, real estate, and other assets, making it a refuge for investors seeking security. This flight to safety increases demand for gold, raising its value. Gold’s identity as a reliable and stable asset during turmoil also derives value.
Limitations on Supply
The supply of new gold entering the market each year is limited and controlled. Annual gold mining adds just 2-3% to the total stockpile. Governments, central banks, and major holders also limit gold supplies and releases to avoid causing price crashes. Constrained supply helps buoy gold prices in the face of shifting demand.
Inflation Hedge
Gold has historically been an inflation hedge. When inflation rises, gold prices often increase as well, making it a potential safeguard against the declining value of currencies. Investors will pay a higher price for gold when faith in paper money falls. Its perceived capacity to maintain buying power through inflation provides additional value.
Strong Returns
While volatile, gold over the long-term has achieved strong returns, averaging 10-15% growth annually over decades. These returns combined with gold’s reputation make it attractive to investors, increasing demand. As more people invest in gold, its price appreciates. Gold has significantly outperformed stocks and bonds over the last 50 years.
| Asset | Average Annual Returns (1970-2020) |
|---|---|
| Gold | 10.2% |
| S&P 500 | 6.9% |
| 10-year U.S. Treasury | 5.2% |
Conclusion
Gold has maintained its status as a highly valued commodity and representation of wealth for centuries because of both its intrinsic qualities and extrinsic associations. Its beauty, physical properties like malleability and durability, rarity, and portability make it a useful and enduring material for currency, jewelry, art, and ornamentation. Its scarcity, difficulty to counterfeit, universal acceptance, divisibility, and other qualities also establish gold as a trusted store of value. Additionally, the consistent demand for gold, its safe haven reputation during turmoil, limitations on supply, role combating inflation, and strong investment returns reinforce gold’s value and significance as a symbol of wealth. These myriad factors make gold arguably the most essential and enduring asset for displaying power and prosperity. Its rich history will likely continue to shape gold’s future status and worth.
