Why Is Gold Valuable

For many centuries a yellow metal has played an important role. From early ancient civilizations to more modern times, gold has been used for a variety of things. Things such as providing power for a ruler, showcasing status between neighbors, or providing a form of exchange for trade among nations. However, despite its attractive shiny personality, gold metal is intrinsically worth nothing. True, it does have some uses in various electronic applications and dental procedures. However, this precious metal only maintains its value to mankind due to the simple fact that it is gold, nothing more and nothing less.

This is the primary reason why over 75% of the annual global demand for gold is for investment purposes or jewelry and not for any practical industrial use. The bottom line, people, primarily use gold for the above reasons as opposed to a beautiful smile or a conductor of electricity. However, why do they prefer gold and not another attractive metal? Why not use copper, aluminum, iron, or something else?

These are great questions, and they need to be answered. However, the answer is simply based on three properties of gold, durability, scarcity, and malleability. These three properties make gold unique from other metals that exist underneath the Earth’s surface. For example, if gold was as common as aluminum, which is one of the more abundant metals in the Earth’s crust, it would not have the same attraction. On the other hand, if it was extremely rare, like rhodium, which only produces 1/10 of the annual production of gold, then it also would not have a worldwide allure.

An interesting point in a shareholder’s letter from Warren Buffett stated that if all of the world’s gold was accumulated, it would weigh approximately 170,000 metric tons. If melted down into a cube, the measurements would be 68 feet on each side. That cube would approximately fit into a baseball infield. Even though current global gold production is 2% of the overall total, gold still offers a perfect balance of being prized while being relatively scarce. Yes, gold is a lot more than just another shiny rock.

Also, gold is extremely durable. This feature adds to the high status of gold. In fact, one of the unique properties of gold is that it is one of the most durable metals in existence. Gold does not tarnish or rust. If you decide to hide all of your gold in the ground for 50 years, or even longer, you would be able to dig it up and see that it was basically unchanged. An archaeologist once wrote that if you discovered a gold tooth in a 4500-year-old Egyptian mummy, its condition would be good enough to allow you to have a dentist put it into your mouth.

Finally, gold is also very malleable. Gold has the distinction of being the most malleable of any metal in existence. For example, 1 ounce of gold could be made into a continuous sheet that measured 100 ft.². You could also use 1 ounce of gold to make a 50-mile long wire. Therefore, it is easy to see why gold continues to be so valuable?