The Importance of Gold
People all over the globe are familiar and enamoured with gold. For centuries, kings, queens and various rulers were measured by their supply of gold. Some countries to this day still keep a stock of gold as the support for their paper currency.
But why is it held in such reverence? The following outline will serve as an explanation for gold’s high price, its prominence in the shaping of the world economy and where it stands today.
Basics of Gold
Gold is considered a metal by scientists, much like copper or silver. The dense and shiny material is one of the most resistant metals to corrosion. A few different general applications have been found for gold. However, most of the time a more suitable replacement such as ceramic or copper can be used more effectively. As a metal gold generally serves no purpose since it is easy to bend and scratch.
Why is gold expensive?
When compared to the price per ounce of other metals such as iron or steel, gold is highly expensive. Three of the main reasons for gold’s high value are:
- Short supply – gold is very rare compared to other metals and is in short supply across the world.
- Creation – gold cannot be manufactured or extracted like other metals.
- Lack of oxidization – gold is highly resistant to rust.
The final property made gold a wonderful tool for making jewellery of all types. Since gold was hard to find and impossible to make, the supply was short compared to the demand. This drove the price of gold up once people began using it for crafting jewels.
Why gold has precedence over other metals
As the price and perceived value of gold began to climb it became a relatively easy manner for exchanging goods. Prior to the use of some type of currency, most cultures used the bartering system for commerce. Animal skins would be traded for a share of barley or corn or other items.
Some people would perform labor in exchange for food and shelter. But with gold people could keep their goods and use the gold to purchase other items. Thus the gold currencies were born. As time marched on, people were reluctant to give up their actual coins. Instead they began giving out papers that promised a specific amount of gold. This led to the paper currency that is so prevalent among most countries today.
The change of gold’s place
As the popularity of paper currency increased people began to build their confidence in the value of their country’s particular currency. This has eventually done away with the need for gold to act as the support for the modern currency. As this shift occurred, gold became a new method for financial investment.
The general consensus among most experienced investors is that gold is a wonderful part of a truly diversified portfolio. The gold portion of investments will generally outperform other investments during slow economic times and will hold its value during robust economies.
