Why Gold Has Always Had Value

By Cory Mitchell | Updated July 11, 2014 AAA
Why Gold Has Always Had Value

Other than looking pretty, and acting as a former currency, gold is seemingly uninteresting, with no intrinsic value other than the value humans have attached it. While used in electronics and micro chips, its application for this function is small. For every 10,000 smartphones there is about 10 troy ounces of gold in them. If gold is trading at $1,500 per ounce, that is about $1.50 worth of gold in each smartphone. So if not out of necessity, why has gold always had value? The reason lies in our psychology as well as gold's rather boring qualities.

Why Gold Has Always Had Value

Our ancestors were faced with coming up with a currency, or medium exchange, that was easier to implement than a barter system. A coin is one such medium of exchange. Out of all the metals on the periodic table of elements, gold is the logical choice. Elements other than metals can be ruled out, since a gaseous or liquid currency is not very practical--personal portability is a major hurdle.

This leaves metals like iron, copper, lead, silver, gold, palladium, platinum and aluminum.

Iron, lead and copper are prone to corrosion over time so would not be a good store of value, which is required of coin. Maintaining the metals to keep them from corroding is labor intensive. Aluminum feels very light and unsubstantial, not ideal for our ancestors seeking a coin-metal that invokes feelings of security and value.

Metals such as platinum or palladium, "noble metals," are reasonable choices because they are mostly non-reactive to other elements (little corrosion), but are too rare to create enough coins to circulate. A metal must be somewhat rare so that not everyone is producing coins, but available enough so a reasonable number of coins can be created to allow commerce.

This leaves gold and silver. Gold doesn't corrode and can be melted over a flame, making it easy to work with and stamp as a coin. Finally, gold has a unique and beautiful color, unlike other elements. The atoms in gold are heavier, and the electrons move faster, creating absorption of some light; a process which took Einstein's theory of relativity to figure out. 

Gold, Psychology and Society

If the modern paper-money economy were to collapse, gold may not have an immediate use as panic sets in and people fight for their needs. Yet, humans are group beings, and prefer company (on varying levels) over complete independence. It is easier to work in groups than attempt to live off the land on our own. This human traits forces us back to a barter system and finding ways of working together, which leads back to finding a way to exchange good and services easily and efficiently. Gold is the logical choice. If disaster strikes, gold is the metal we will revert to if paper-money, and the system that supports it, no longer exists. It is one of the only substances on earth with the qualities for the job. 

Even if a gold has no intrinsic value to the person holding it (he or she can't eat it or drink it), if an agreement is made that turns metal into coins which can be used for easy exchange of goods, that coin takes on a value. Because others believe it has value, you do to, and because they think you value it, they value it too.

The Bottom Line

From a elemental perspective, gold is the most logical choice for a coin, or medium of exchange for goods and services. It is abundant enough to create coins, but rare enough that not everyone can make them. It doesn't corrode, providing a sustainable store of value, and humans are physically attracted to its color and feel. Societies, and now economies, have placed value on gold, thus perpetuating its worth. It is the metal we fall back on when other forms of currency don't work, which means it always has some value as insurance against tough times.

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