Why Is Gold So Expensive?

You’ve probably heard someone say, “gold is just a silly piece of rock and the only reason it’s expensive is that people like shiny things.”

We’re here to tell you that’s half-right. But there’s more to gold than just being a shiny rock.

So why is gold so valuable anyway? Why is it so expensive? And more importantly, will gold still have value in the future?

Firstly, let’s define ‘value’

For something to have value, it must be useful to us in some way. For example, you would consider money valuable because you can exchange it for things that you want.

In that same way, gold has value because it is a physical store of value with unique properties that has long been used as a fair measurement for the exchange of goods and services.

A brief history of gold

Fun fact: Nobody can exactly tell when gold was discovered, but archaeologists have found traces of gold in ancient caves that date all the way back to 40,000 BC.

Gold’s earliest uses and ‘value’ were purely ornamental in the early civilizations because of its brilliance, color and how easy it is to shape.

Of all the metals, gold is the easiest to work with; it can be found naturally as ‘dust’ or ‘nuggets’ and has a low melting point, making it easy to shape with basic tools in room temperatures. This was important in ancient times as they did not have advanced technology for complex metal works.

Gold was mostly used as jewelry and art pieces – things that only the rich and royals owned. Naturally, early civilizations started to associate gold with gods and rulers – with power, wealth and beauty.

Hence gold was accepted, understood and in demand around the world as a rare commodity that was valued for its allure and functional properties.

How gold became a unit of measure

Gold is durable (it doesn’t rust or tarnish), rare and malleable. This is how it came to be the basis of trade back in early civilizations. It was also portable and easy to measure and identify, making it the perfect medium for trade.

The first gold coins were made in early Lydia (now western Turkey) in 6th century BC. The idea of gold coins of uniform weight, size and identity spread amongst kingdoms and was quickly adopted as de facto currency by civilizations.

French historian Fernand Braudel deemed gold (and silver) as the “lifeblood of Mediterranean trade in the 2nd millennium BC”. It was traded simply by weight in the form of ingots (bars).

Alas, gold gave rise to the earliest concept of money. Eventually, standardized coins and bars came to permanently replace classic barter trading, making universal trade in the past much easier.

Why is gold still so expensive

As mentioned, gold still holds intrinsic value due to its unique physical properties and as a portable store of value. Today, several other demand factors also play a central role in upholding high gold prices.

1. Pure gold is indestructible

Compared to silver, platinum and copper, gold does not rust, tarnish or corrode – meaning gold virtually lasts forever. This is why gold demands such a high premium over many other metals.

2. Gold has industrial applications

Gold is an electric and heat conductor, often used in electronics and technology. It is also ductile and malleable for use in dentistry, medicine and even food!

3. Gold jewelry and luxury items

Gold jewelry alone accounts for 50% of the global demand. Gold’s association with wealth, status and beauty, coupled with the fact that it’s rare and limited, is often used in things like cars, watches and designer items to demand a higher premium.

4. Collector coins and bars

Many people pay a premium on rare, historical and mint coins and bars as collector keepsakes and/or as long-term investments.

5. Universal value

Physical gold is portable, storable, measurable and highly liquid anywhere around the world. Many view gold as a form of ‘universal currency’ because it’s universally accepted as a commodity of value wherever you are.

6. Central banks store gold

Central banks and governments stock gold as a reserve currency and safe-haven asset in the event of an economic crisis.

Will gold continue to have value in the future?

Application industries, financial markets and jewelry stand as cross-sectional demand drivers for gold. This simply means we can be sure that as long as people continue to use gold in electronics (like your mobile phones), as investments, or as jewelry, gold has and always will be in demand.

There’s very good reason to believe that gold could even become more expensive in the coming years. Gold supply is finite and scientists have already found most of the world’s gold deposits. This means the global supply of gold is decreasing while its demand continues to increases across different industries. Coupled with the increase in mining costs, we can be confident that gold prices will significantly increase.

Should you buy gold?

There are many reasons you should buy gold. It is a great way for you to maintain your purchasing power, grow your wealth, diversify your portfolio and save your hard-earned money.