Why is Gold So Valuable?

From a non-economist view, gold is one random element out of a total of 118 elements on the periodic table. Gold is non-consumable, meaning that we cannot consume gold like other commodities such as oil, natural gas, grains, and coffee. There aren't many practical uses that can be achieved only by means of gold.

A few practical uses of gold are electrical conductor, dentistry & other medical purposes, radiation reflector, and temperature stabilizer in satellite. Many of these functions can also be carried out using silver or copper. According to the World Gold Council, only 10% of the total produced gold is used for these purposes.

Still, gold is the most valuable and desirable metal in the world. Gold is currently trading at $1,972.90 per ounce in the US market. Meanwhile, fine gold is being traded at Rs. 1,01,900 per tola in Nepal while writing this article.

So, what are the reasons for gold being this valuable?

Historically, gold coins were widely used as currency due to their rare availability. Even after the paper currency was introduced, currencies were pegged against the gold reserve for a significant span of time. It was only in 1971 that US President Richard Nixon removed the gold standard.

Further, this yellow and shiny lavish metal has non-toxic and non-reactive properties. That is why Gold's luster has allured jewelry lovers around the world for thousands of years.

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Here are more detailed reasons why gold is valuable:

1. Unique Metalic Properties of Gold:

Gold, denoted by the atomic symbol Au, is the 79th element of the periodic table. Gold is ductile, highly reflective to light, and malleable, so it can be hammered into any shape without degrading its quality. Also, gold doesn't react with other metals, nor rusts or corrodes. Further, gold is non-magnetic and unscratchable.

Therefore, gold is a noble metal among all. If we have to mold any metal in the desired shape to worship, store, or keep it as a souvenir, gold is a perfect choice.

2. Jewelry demand in the world:

Around 50% of the total gold produced in the world is used for making jewelry. Gold is yellowish shiny, bright, and beautiful metal to wear. Culturally, wearing gold symbolizes pride. Because pure gold is soft, it is easy to design and reshape into appealing ornaments, although it has to be mixed with other metals to give the products their dexterity. This is why gold is always high in demand in the jewelry and fashion market, and consumers are always ready to pay for their favorite metal.

3. Limited Production of Gold:

Approximately, 200,000 metric tons of gold have been already discovered. Mining gold is getting harder with each passing year. It involves high technology, expensive machinery, and lots of efforts to mine gold. It is predicted that gold mining will be economically unsustainable by 2050.

Even though gold cannot be completely consumed and depleted, the demand for gold is always high. Therefore, the interaction of limited production and supply of gold and high demand makes gold always valuable.

4. Central bank maintaining gold reserve:

One of gold’s primary roles for central banks is to diversify their reserves. The banks are responsible for their nations’ currencies, which are subject to swings in value depending on the perceived strength or weakness of the underlying economy.

Since gold carries no credit or counterparty risks, it serves as a source of trust in a country, and in all economic environments, making it one of the most crucial reserve assets worldwide. For this reason, central banks across the globe now hold more than 35,000 metric tons of yellow metal. This adds more reasons for gold to be valuable.

5. Wealth Protection:

As we can see, with the ongoing conflict of Russia-Ukraine, a situation like this has huge threats to physical properties and infrastructure. A situation like this carries a risk to both businesses and the government. Financial instruments associated with both businesses and government can be worthless at times like this. This ultimately leads to a situation where that country's currency with be worthless.

Gold is the metal we will 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.

6. Protection from currency inflation:

Inflation is a situation of an increase in prices and a decrease in the value of a country's currency. Any economy is subjected to inflation as it is inevitable. As the economy grows, profit and wages will also increase. So, there will always be inflation.

Therefore, various investment instruments are used to protect from inflation. Like buying bonds and debentures, buying gold is one kind of strategy to be protected from inflation. Hence, investors consider gold investment in their portfolio resulting in a simultaneous rise in the value of gold.

7. Social and cultural aspects:

Gold is one of the most highly-desired and useful metals both from a social and cultural perspective in the world. Today, gold still occupies an important place in our culture and society – we use it to make our most prized objects: wedding rings, jewelry, medals, presidential prizes, and the like. Hindus believe that gold has the power to purify anything it touches. In the Hindu religion, gold symbolizes wealth, power, health, prosperity, and femininity. For all these reasons, people buy gold.

According to the Federation of Nepal Gold and Silver Dealers' Association (FeNe- GoSiDA), the demand for gold usually doubles during festivals and wedding seasons in Nepal. (2021: The demand for gold reached 40 Kilogram per day from 20 Kilogram per day.)

8. Psychological aspects:

When we think of gold, images of luxury, and extravagance arrives in our mind. Our eyes are attracted to the color gold. Gold provokes emotions of happiness, abundance, and pleasure in our minds. Simply, gold makes us happy. Or say we have allowed gold to make us happy.

Therefore, many believe that gold is valuable, so we do too. And since others think we value gold, they will value it too. This creates a self-fulfilling prophecy, and people will continue perceiving it as an object of value.