There already exist a plethora of articles about gold as a financial investment, so here we focus on the social and psychological aspects of gold.
- Beginning with ancient civilization, from the Egyptians to the Inca, gold has held a special place of actual and symbolic value for humanity.
- Gold has been used as money for exchange, as a store of value, and as valuable jewelry and other artifacts.
- Gold's value is ultimately a social construction: It is valuable because we all agree it has been and will be in the future.
- Gold's lustrous and metallic qualities, its relative scarcity, and the difficulty of extraction have only added to the perception of gold as a valuable commodity.
Why Has Gold Always Had Value?
Some people argue that gold has no intrinsic value, that it is a barbaric relic that no longer holds the monetary qualities of the past. 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 they do vehicles through which to make those investments.
Gold's Essential Dichotomy
Most would agree that gold has always had value for all these reasons: 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, which, though harder to pinpoint, is as just as real: its mystery. Part of the very appeal of gold is the mystery of its appeal.
Gold can stimulate a subjective personal experience, but it also can be objectified if it's 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 day in mid-December. You're strolling along Fifth Avenue in New York—either alone, or with a family member—to look at the holiday shop windows. It's late afternoon, and the thin winter light has begun to fade, turning even darker earlier because of the threat of snow or rain today. The bells of Salvation Army red-kettle ringers grow muffled and distant; the sky lowers, closing in around you, as the first flakes of winter fall.
You stop, drawn by a Tiffany window featuring a few gold jewelry pieces. Exquisitely designed yellow, pink, and white gold shapes peek from an exotic display of corals and underwater fauna. Lights in the display coax out the metal's incandescence. Suddenly, a brisk wind rises, making snowflakes swirl faster around you. "Hmmm," you think, "Hot chocolate? A Cognac?" You duck into a nearby hotel bar—the St. Regis, perhaps, snug with its familiar fireplace.
Well, 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 Metal to Worship
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, and aluminum.
Iron, Lead, Copper, and Aluminum: These metals are prone to corrode over time, so they wouldn't be a good value in terms of storage, which is required of coins, and keeping the metals from corroding is labor-intensive. Aluminum feels very light and unsubstantial—not ideal for a coin-metal that could invoke feelings of security and value.
The "Noble Metals": Platinum or palladium, among the substances known as the noble metals, are reasonable choices because they are mostly non-reactive to other elements—that is, produce little corrosion—but they are too rare to generate enough coins to circulate. To assign value to a metal, it must be somewhat rare—so that not everyone is producing coins—but available enough so that a reasonable number of coins can be created for commerce.
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. 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 so as 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 of the light to be absorbed into 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 the modern paper-money economy were to collapse, gold might not have immediate use—as panic sets in and people fight for their basic needs—but it would eventually.
Humans are pack animals. We prefer the company of other humans (to varying degrees) 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.
Because others believe that gold has value, you do, too; because they think that you value gold, others value it, too.
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 exists, 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 to turn gold into coins for a system of exchange for goods, then that chunk of gold instantly would assume a value. What was originally inedible could be exchanged for a Wagyu steak dinner, for example.
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, there are some qualities of gold that make it an ideal option to serve as a medium of exchange. Unlike many other metals, gold doesn't corrode or 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?
There are many 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.
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, providing 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 we'll likely fall back on when other forms of currency don't work, which means that gold will always have value in tough, as well as good, times.