There are a plethora of articles about gold as a financial investment. Here, we focus on the social and psychological aspects of gold that make its value endure.
Key Takeaways
- Beginning with ancient civilization, from the Egyptians to the Inca, gold has had an actual and symbolic value for humanity.
- Gold has been used as money for exchange, as a store of value, as valuable jewelry, and as other artifacts.
- Gold’s value is ultimately a social construction; we all agree it always has been valuable and will be in the future.
- Gold’s lustrous and metallic qualities, relative scarcity, and difficulty of extraction add to the perception that gold is a valuable commodity.
- Platinum is a valuable metal, too, but can’t be made into currency due to its rarity.
Why Is Gold Valuable?
Some people argue that gold has no intrinsic value. They say it is a barbaric relic with no monetary qualities. They contend that in a modern economic environment, paper (or digital) currency is the money of choice, and that gold’s only worth is as a material for making jewelry.
At the other end of the spectrum are those who assert that gold is an asset with various intrinsic qualities that make it unique and necessary for investors to hold in their portfolios. They believe that investors have as many reasons for investing in gold as there are gold investment vehicles.
The reasons behind gold’s enduring value include:
- Gold is perceived as a symbol of wealth, power, and majesty.
- Gold has had an exalted position throughout the ages as a highly coveted, even worshipped material.
- Gold has been used over millennia as jewelry and a means of exchange.
- Gold has an important economic role as a means of exchange should currency collapse.
- Gold is a store of value and thus an investment opportunity for individuals.
- Gold is rare and difficult to extract.
- Gold is malleable and can be formed as needed for use in, among others, electronics, dentistry, medical tools, and the defense, aerospace, and automotive industries.
- Gold is durable and noncorrosive.
- Gold has visual beauty and magnetic appeal.
Gold’s Essential Dichotomy
Most would agree that gold has always had value as a component of decorative jewelry, a sometime currency, and as an investment. But in addition to these concrete values, we would add another characteristic of gold that, though harder to pinpoint, is just as real. Part of the appeal of gold is the mystery of that appeal.
In the world of finance and investing, we often like to tiptoe around the word “mystery.” Yet, as is true with most disciplines, there is always a place for both science and art, and even mystery.
Gold can stimulate a subjective personal experience, but it also can be objectified if adopted as a system of exchange.
Gold can exist as something that is quantitative and tangible while embodying the qualitative and ephemeral.
Gold, the Feel-Good Metal
It’s a cold afternoon in mid-December. You’re strolling along Fifth Avenue in New York City, looking at the holiday shop windows, and suddenly you stop, drawn in by a Tiffany & Co. window featuring a few pieces of gold jewelry.
Maybe you haven’t had this exact experience. But you get the idea. Something about the warmth of gold speaks to our human need for comfort and nurturing.
In Search of a Method of Exchange
Our ancestors were faced with devising a method of exchange that was easier to implement than a barter system. A coin is one such medium of exchange. Of all the metals in the periodic table of elements, gold is the logical choice. We can rule out elements other than metals because a gaseous or liquid currency isn’t very practical from the standpoint of personal portability. This leaves metals like iron, copper, lead, silver, gold, palladium, platinum, andaluminum.
Iron, Lead, Copper, and Aluminum
These metals are prone to corrode over time, so they wouldn’t have good value in terms of storage, which is required of coins. Moreover, keeping the metals from corroding is a labor-intensive task. Aluminum feels very light and unsubstantial—not ideal for a coin-metal that should invoke feelings of security and value.
Noble Metals
Platinum or palladium, among the substances known as the noble metals, are reasonable choices because they are mostly nonreactive to other elements—that is, they produce little corrosion. But they are too rare to generate a sufficient number of coins to circulate. To assign value to a metal, it must be somewhat rare (so that not everyone can produce coins with it) but plentiful enough so that a reasonable number of coins can be created for commerce.
Gold and Silver
Gold doesn’t corrode. It can be melted over a flame, making it easy to work with and stamp as a coin. Silver and gold are beautiful metals that are easy to form into jewelry, and both of these precious metals have their own devotees in fine-jewelry circles.
Gold, the Mysterious Metal
Although silver can be polished and textured in multiple ways to catch the light and the eye, there remains no metal quite like gold. Unlike other elements, gold naturally possesses a subtle array of unique and beautiful colors.
The atoms in gold are actually heavier than in silver and other metals. This attribute makes the electrons move faster, which in turn allows for some light to be absorbed by the gold—a process that Einstein’s theory of relativity helped to discern.
Perhaps gold’s physical quality of absorbing light makes its special shine come literally from within.
Gold, Psychology, and Society
If a modern currencywere to collapse, then gold might not have an immediateuse—as panic sets in and people fight for their basic needs—but it would eventually be used as payment for goods and services.
Humans Are Pack Animals
To varying degrees, we prefer the company of other humans over complete independence. It is easier to work in groups than to attempt to live off the land on our own. This human trait forces us to find ways of working together, which in turn leads us to find ways of exchanging goods and services easily and efficiently.
Gold Provides the Comfort of Sustainability
Gold is the logical choice for this exchange. If disaster strikes, such that paper money and the system that supports it no longer exist, we will likely revert to gold. Arguably, gold is one of the only substances on Earth with all of the qualities for the job, including sustainability.
How a Gold Brooch Can Become a Wagyu Steak
A chunk of gold may have no immediate physical value to the person holding it. They can’t eat or drink it, for example. But if society agrees that gold can be exchanged for coins and paper currency, then a gold brooch instantly assumes a value. What is inedible could be exchanged for a Wagyu steak dinner, for example.
Because others believe that gold has value, you do, too. If everyone values gold, then it must be valuable, right?
What are the benefits of owning gold?
Beyond its natural shine and mysterious allure, there are a number of financial reasons to own gold. For one thing, gold serves as a store of value, meaning that its value remains stable, rather than declining over time. Along these same lines, gold is useful as a hedge against inflation. Although inflation pushes down the value of currencies, gold isn’t subject to this downward pressure. The stability of gold as a financial asset also makes the precious metal attractive to own during periods of economic turmoil.
What characteristics make gold valuable?
The value of gold rests in a shared belief that the precious metal is, in fact, precious. However, some qualities of gold make it an ideal option to serve as a medium of exchange. Unlike many other metals, gold doesn’t corrode or otherwise deteriorate in quality. In addition, gold is rare enough that not everyone can make a gold coin, but there is a sufficient supply to ensure a healthy circulation of coins.
How can I invest in gold?
Various investment options available for investors looking to add gold to their portfolio. Those drawn to gold by its physical allure may want to purchase gold bullion, coins, or jewelry. However, there can be significant storage and insurance costs associated with physically owning the metal. Other popular investment vehicles include gold exchange-traded funds (ETFs) and shares of gold mining companies.
Do countries hold stores of gold?
Yes, and sovereign holdings of gold go a long way to underscoring the universal belief in its enduring value. As of 2022, the United States had more than 8,000 metric tons of gold.
What was the gold standard?
The gold standard was an economic system that connected a fixed value of a country’s currency to a fixed amount of gold.
The Bottom Line
From an elemental perspective, gold is the most logical choice for a medium of exchange for goods and services. The metal is abundant enough to create coins but rare enough so that not everyone can produce them. Gold doesn’t corrode, it provides a sustainable store of value, and humans are physically and emotionally drawn to it. Societies and economies have placed value on gold, thus perpetuating its worth.
Gold is the metal that we’ll likely fall back on when other forms of currency don’t work. This means that gold will always have value in tough, as well as good, economic times.
