Why is Gold Valuable
Throughout history, only a few metals could achieve the same level of value as gold. It has supported exploration and exploitation for at least two centuries, served as hard money for almost every culture that had access to it, and directly supported the predominant economic theory. Despite being fairly soft and exceedingly shiny, it is one of the most valuable and significant metal humanity has ever utilized. If you’re wondering why gold is so expensive and valuable, continue reading to find out the answer.
- Gold Has Limited Supply
First, the supply of gold is limited. Comparing fiat currencies like the dollar, which can have a limitless supply. The last two years saw the creation of 80% of all US dollars in circulation. In contrast, there are only 131 million ounces of gold in existence overall. Just 0.015 ounces are used for each people on Earth. Gold prices would soar if the US dollar were to crash. When it comes to the amount of gold that enters the market annually, gold must be extracted from the earth by mining. As a result, gold becomes more difficult to obtain, as more of it is extracted from the earth.
- Gold Has Held Its Value for Thousands of Years
The gold rate has always been high because gold is considered as one of the world's oldest sources of wealth. It has maintained its value over that time. For instance, in ancient Rome, one could buy a good toga for one ounce of gold. A nice suit may be purchased today for one ounce of gold, which costs $1,900. When it comes to buying crops, property, and other assets, a similar comparison can be made. Compare the long-term worth of gold to nearly all the world's currencies. A fiat currency's lifespan is actually only 30 years on average, and the British pound, which has been in use for almost 300 years, is the oldest money in existence.
- Gold is Accepted as Money
Another factor that keeps gold costs high is that almost everywhere in the world accepts gold as payment. It has been like this for a very long time. Because of this, gold is very precious to many cultures. For instance, if your home country's currency is falling, and you wanted to buy oil in the Middle East, they might not accept it. However, they will very certainly take the gold. It is important to remember that gold can be received in a variety of ways. However, using real bullion is the most common method of trading in gold. Gold bars and coins are included in this. In times of economic crisis, other types of gold, such as ETFs and futures contracts, can be less valued.
- Gold is used as Sovereign Wealth Holdings
The fact that nearly all nations have their own sovereign gold holdings is the one thing that really contributes to gold value. The United States gold reserves today total over 4,500 metric tons. In the past, it was possible to trade money for gold; however, this is no longer doable in the United States. The nation nevertheless still keeps a sizable amount of gold on hand as a reserve.
- Gold is Uncorrelated with Other Assets
As a result of the fact that gold has never historically had a relationship with other assets, owning it is a wise decision for almost any investor. For instance, the gold price typically maintains or increases in value as the price of equities declines. Due to this, a large number of investors and hedge funds will keep at least a portion of their capital in gold. In fact, holding between 5% and 15% of one's assets in gold is advised for private investors.
How Did Gold Become Valuable Historically?
It is crucial to first comprehend the history of gold in order to fully understand present times. For instance, gold was utilized as far back as 8,000 years ago by the ancient civilizations of Egypt and Rome. Continuously, nations who settled in Central America and South America and built impressive civilizations like the Aztecs, Maya, Toltecs, and Incas continued to revere gold throughout history. In ritual rites like sacrifices or coronations, these civilizations respected gold's supernatural power and adored it for its beauty.
As we already mentioned, ancient civilizations used gold as money (gold coins), which aided in their economic and cultural development. In addition, nations who settled in Central America and South America and built impressive civilizations like the Aztecs, Maya, Toltecs, and Incas continued to treasure gold throughout history. In ritual rites like sacrifices or coronations, these civilizations honoured gold's supernatural power and adored it for its beauty. In addition, gold has also been viewed as the ultimate representation of authority and power, like gold medals and gold statues that were reserved for nobility and royalty in 13th-century England.
The globe was striving to stabilize after World War II, but there was a lot of debt and inflation. At the Bretton Woods Conference in 1944, representatives from 44 different nations agreed to fix the price of one ounce of gold globally at $35 for at least 20 years. In order to ensure that there was enough gold to support all of the worldwide trade, they also agreed to convert dollars into gold. Although gold had already been used as money, this established it as the global gold standard. The American dollar was then linked to gold at this time. Additionally, the weight and purity of gold were standardized.
