Why Does Gold Have Value?

Money Talks 8

Gold is valuable because of its natural qualities

That is, gold is intrinsically valuable. Something with intrinsic value is valuable because of the way that it is. Gold is a metal that is durable, dense, and yet can be fashioned into practically any shape because of its malleability. So, let’s say that you had to go on the lamb or run from an invading army. Let’s also say that you need to hide your wealth for an indeterminate period of time.

Gold is valuable because it is scarce

The value in anything lies in part in its scarcity. Whether it is food on a desert island, a limited edition pair of Jordan sneakers, or tickets to the Super Bowl, the less of a desirable object that exists, the more people are generally willing to pay for it. Gold is a finite resource. It is not cheap to extract from the earth, and much of the gold that exists as a readily purchasable asset is held by those with no intention of giving it up. Their logic: why would I give up my gold? For what? In fact, the governments of the world maintain most of the gold supply in their reserves. This is a smart move, as it ensures a level of control over their national currency’s value (which we will get to later) and also restricts the flow of gold in the private economy, which provides a floor for the price of gold by ensuring a restricted supply.

Gold is valuable because it is recession and depression-proof

Gold is a time-tested store of value that only becomes more valuable during severe economic downturns. Conversely, paper money could theoretically become valueless, depending on the severity of the downturn. History has shown us that this is a distinct possibility. See: the United States of American circa 1929, Germany circa 1914, and Zimbabwe circa 2019 as examples of how an economic downturn can ravish the value of a national currency, to the point where it is more useful as kindling for a bonfire than as a way to buy food or medicine.

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