Why is gold so valuable?

“Investment in gold now is insurance” (Alan Greenspan)

A safe-haven investment, the ultimate global commodity, a hedge against inflation… That gold offers investors security in uncertain times is a truth so widely accepted that few of us ever stop to ask why.

So, why is gold so precious?

Gold’s association with wealth and its role as a form of currency can be traced back to the very beginnings of civilisation itself. Historians believe that coined gold was first used (in the form of punchmarked bean-shaped ingots) in the kingdom of Lydia at the beginning of the 7th century BC., but gold bars with standardized weights and value were being used in Egyptian and Mesopotamian cities as early as the third millennium BC. Indeed, ingot currencies and pieces of gold in the form of rings and spirals seem to have been used as a medium of exchange in societies across most of the ancient world, from Mycenae to the lake-dwelling communities of the North Alpine Celts, and gold has continued to fuel and facilitate international trade, commerce and events throughout history.

The roots of modern chemistry arguably lie in the alchemists’ dream of “magicking” pure gold from base lead, an ambition that acquired greater urgency following the “Great Bullion Famine” of the Late Middle Ages when the definitive exhaustion of several major mines in Europe led to a dramatic decline in availability. It was the promise of new supplies of gold that drove the Spanish Conquistadors to brave the perils of the Atlantic (and to destroy the mighty Aztec and Inca empires) and, used in medicine, microchips, sensors, space telescopes or to protect NASA’s astronauts and equipment from heat and radiation, gold is still powering our exploration of new worlds today.

The contemporary technological applications of gold remind us that the metal’s value is far from being merely symbolic. In fact there are many reasons why gold, of all metals, has always been so universally prized.

Gold is rare

According to the World Gold Council, “it is rarer to find a one-ounce nugget of gold than a five-carat diamond”, and less than 175,000 tonnes of gold has been mined since the beginning of civilisation. To put that in perspective, Australian mines alone produced an estimated 825 million metric tonnes of iron ore in the twelve months of 2016.

Gold is stable

That’s not just a financial metaphor! Apart from its rarity, much of gold’s intrinsic value lies in the fact that it is chemically unreactive: in other words, it doesn’t corrode. Because it is unaffected by contact with oxygen and most acids, gold doesn’t deteriorate over time. So, with the possible exception of return on investment (a theme we’ll leave to market analysts), gold undoubtedly possesses all the qualities required of traditional reserve assets – safety, liquidity, mitigation of risks, low transactional costs, universal acceptance and (thanks to its physical durability) preservation of capital.

Gold is useful

Gold is actually very, very useful. Soft, very dense and highly reflective, it is the most ductile and malleable of all metals, properties that have been exploited by jewellery makers for millennia and are now employed in many forms of cutting-edge technology.

One ounce of gold can be hammered into a single sheet 9 metres square or stretched to a length of 50 miles. This ductility combined with its efficiency as a conductor of electricity are exploited in advanced electronics where the fact that gold doesn’t tarnish is particularly important in guaranteeing reliable performance.

Its sheer strength makes it an ideal lubricant in conditions in which traditional organic lubricants cannot be used – in space, for example. Back on Earth, gold’s catalytic properties (it accelerates chemical reactions without being rapidly consumed by them) are being put to the service of the environment: it is already used in catalytic convertors and gold-based chemical catalysts have now been developed to help remove pollutants from groundwater. Other environmentally-friendly applications include the use of gold nanoparticles in solar cells to improve their efficiency, and – again in the realm of clean energy – a coating of gold in fuel cells for electric vehicles extends their lifespan. A thin coating of gold on windows reflects heat radiation, making buildings more energy efficient. Gold is also used on aeroplane windscreens to reflect infra-red radiation.

Gold is non-toxic and its biocompatibility and resistance to infection are proving increasingly exploitable in medicine. Long used in dentistry, gold is now also employed in delicate implants elsewhere in the body. Gold is used in home pregnancy tests and HIV and malaria diagnosis. It has been used in the treatment of rheumatoid arthritis and research also suggests it could be effective in treating dysentery and possibly leukaemia. Its existing and potential uses in the field of medical nanotechnology include the use of gold nanoparticles as a contrast agent in diagnostic imaging, the targeted delivery of drugs to tumours, the possibility of injecting tumours with gold-coated “nanoshells” that can be heated with near-infrared lasers to destroy the cancer cells, and “needle-free” vaccine delivery.

How much gold does industry use?

The electronics sector alone uses around 300 tonnes of gold per annum. Overall, technical applications currently account for approximately 9% of world demand, but jewellery continues to represent the most important market for gold, absorbing around 50% of annual production. Approximately one third of global demand comes from investors buying physical bullion, gold stocks and ETFs (more of which in our next blog post).

Keeping your safe-haven investment secure

If you have invested in gold and keep gold coins or ingots (gold bars) in a safety deposit box, do remember that it can be insured. For further information about security box insurance please contact us or go to any page of our main website for an instant online quote.