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What Makes Gold Valuable?

What Makes Gold Valuable?

Posted on October 11, 2022
Writer: James Miller

Gold has been one of the most widely used trade currencies ever since the practice of bartering was first developed. The ancient kingdom of Lydia, situated in modern-day Turkey, was the first to employ gold as a kind of payment. Around the year 600 BC, the nation created its first gold coin.

Despite the many years, gold remains a valuable asset due to its consistent price increase. Moreover, many investors purchase gold bars and coins to hedge against inflation and diversify their portfolios for long-term growth.


Properties That Make Gold Valuable

Aside from the great demand for gold among investors and its application in a wide variety of sectors, gold is valued due to specific properties that are exclusive to this metal. These properties include its malleability and its corrosion resistance. Gold is the only metal with all of the required qualities to be considered a bullion metal, which is a commodity that is used for commerce. The most noteworthy of them are as follows:

Color and Aesthetics

The element gold, denoted by the chemical symbol Au, gets its name from the Greek word aurum, which translates to “glow of sunlight.” Gold is the only metal that comes in this particular bright yellow hue. Because of this, and the fact that the yellow gold hue enhances the attractiveness of whatever item it is applied to, it generates a highly unique aesthetic appeal.

Physical and Chemical Properties

Gold’s worth also stems from the fact that it has distinctive physical and chemical characteristics. For instance, gold is both one of the most malleable and the softest metals. As a result, it is possible to beat one ounce of gold into a sheet of 300 square feet.

Additionally, it is an excellent conductor of both heat and electrical current. Gold is also considered a noble metal, which indicates that it nearly never reacts chemically with any other element. Because of this, gold can remain undisturbed by air and other chemicals, enabling it to maintain its visual beauty for a considerable time.

Portability

The variability of gold also makes it a valuable investment asset. It comes in many types, sizes, and purities. All of those factors determine the price of a gold asset, which could range from several hundred to several million dollars. Gold’s portability also makes it convenient for new or experienced investors to purchase the asset. Depending on your budget and investment goals, you can buy small gold coins weighing a few ounces or large gold bars.

Validity

Gold has many properties that are unique to this metal only, such as its shiny color. Thanks to those characteristics, it becomes significantly harder to fake gold than other metals. Moreover, many gold assets are accompanied by a certificate of authenticity, verifying their realness.

Durability

Since gold is regarded as a noble metal, it rarely reacts chemically with other compounds. Gold is hence durable and immune to the degrading effects of time. It is, therefore, resistant to rust and tarnishing. Gold is unique from other metals in that it can be in circulation for a long period without losing its aesthetic appeal because of its exceptional endurance.

Scarcity and Safety

Additionally, the value of gold is also influenced by its rarity. Gold achieved the ideal equilibrium because of the following characteristics: it is scarce enough to be precious, but it is also common enough to have a vast circulation and sufficient quantity to be utilized everywhere. In addition to this, gold is considered one of the most secure bullion metals. Due to gold’s intrinsic value, it is a relatively stable investment.


What Makes Gold Expensive?

There is not a single major factor that determines gold’s value, but rather a set of smaller factors working together that influence its price. The first influential factor is inflation. It is noted that high levels of inflation tend to push gold’s price higher.

Another factor that affects gold’s price is economic data. For example, there is a tendency for gold prices to lower whenever the U.S. Dollar strengthens. Other factors include a decrease in unemployment and an increase in the gross domestic product (GDP).

One more influential factor is supply and demand. As with other goods, high demand and low supply push the price of gold higher, while low demand and high supply diminish its price.

Gold’s price is also driven upward by its limited supply and the inherent difficulty of acquiring the precious metal. In 2010, gold production was around 2,500 tonnes, increasing to about 3,260 tonnes in 2018. However, since 2016 production hasn’t significantly changed; as mining has become more difficult the supply has dwindled. The increased difficulty of mining also creates additional value. Therefore, gold’s value significantly increased from $1,325.25 in November 2015 to $2,011.63 in March 2022.

Lastly, gold’s intrinsic value adds to demand and price, especially in unstable economic times. Unlike paper assets, gold is valuable because of the content of the precious metal. As a result, gold bars and coins will cost more if they contain a higher amount of pure gold. In turn, pure gold is in demand among investors seeking to secure their assets with a more stable investment option.


How Does Investment Demand Affect Gold’s Value?

The price of gold is subject to supply and demand, just like any other asset. The demand for any type of gold asset, whether it be coins or bars, increases during times of rapid inflation or economic instability. This is because gold is one of the few assets that offer long-term wealth protection.


How Does Gold Offer Wealth Protection?

Many investors choose to buy gold when looking to avoid volatile price fluctuations in the stock market. Throughout the years, gold has proved to be one of the most stable assets. For instance, many investors opted to purchase gold during the 1980s recession because the asset’s intrinsic value was inversely tied to paper assets.

During that recession, gold reached its all-time high of $2,581.03 in January 1980. Due to the many factors that affect gold’s value, it still remains one of the safest investments due to its relatively steady increase in value and price.


What Gold Is Used For?

Gold has several applications, each of which contributes to a better understanding of the factors that keep gold’s price stable over time. First, gold was used as currency. To this day, gold is still traded, stored, and transacted in its many forms across the world.

The second primary use for it is in the production of jewelry. Golden jewelry is one of the most significant contributors to the industry’s overall revenue.

Electronics are another industry that makes use of gold. A trace quantity of gold may be found in a variety of electronic equipment, including mobile phones and laptop computers.

In addition to this, gold finds widespread use in the field of dentistry. In certain regions, people even have their teeth made of gold. These applications include dental fillings, crowns, and orthodontic equipment. 

Gold is used in a variety of additional applications within medicine due to the fact that metal does not trigger allergic reactions in patients. In addition, NASA employs gold in the construction of spacecraft. For instance, they put it to use in a coating that is resistant to UV light.


What Impacts the Price of Gold?

There are various variables that can change gold’s price. Some can directly affect the price, while others can slightly influence it. However, these are the factors that have the most influence over gold’s market value:

  1. Economic data. The current economic state of the country can affect the price of gold. Even though it is not always correlated, gold’s price tends to drop when the economy strengthens due to lower unemployment rates or higher GDP.
  1. Supply and demand. Gold is an asset that can be bought, traded, and sold just like any other. As a result, there is a certain amount of supply and demand. Once the demand for gold outweighs the supply, its price rises. The opposite happens when the supply outweighs demand – gold’s price decreases.
  1. Inflation. Inflation devalues a currency, making everything bought with that currency more expensive. This affects gold as well. As paper money becomes less valuable, gold remains stable or increases in price because it is intrinsically valuable due to its precious metal content.
  1. Central banks are also major gold price movers. When the foreign exchange or economy is not very stable, central banks store gold to protect what they have. But banks sell gold whenever the economy and foreign exchange become more stable. When the banks sell large amounts of gold, the market supply of gold significantly rises. This results in decreased gold prices. As a result, banks are advised not to sell more than 400 metric tons of gold in a year.

Conclusion

Due to gold’s relative stability throughout the decades, it has remained a popular investment option. Many investors purchase gold coins and bars as it affords them more stability and growth than stocks.

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