Definition of gold
Gold is one of the most valuable precious metals in the world. It is represented by the symbol AU on the periodic table, which is derived from aurum, the Latin word for gold.
Gold stands out amongst other metals by its distinctive yellow color, high malleability, conductivity, and strong resistance to corrosion and tarnish. It has a relatively low melting point of 1,064°C (1,947°F) which makes it easy to work with in jewelry and technology.
Historical significance of gold
One of the reasons why gold is so valuable today is that it’s simply always been that way. Below, we give a brief look at humanity’s relationship with gold throughout the ages.
Gold in ancient civilizations
Gold’s value stretches back to some of humanity’s earliest civilizations. The Egyptians were mining and crafting gold as early as 3600 B.C. and considered it a symbol of immortality and divine authority. Gold was associated with the gods, especially Ra, the sun god, and was often used to craft sacred objects like jewelry, amulets, tombs, and burial masks (the famous Tutankhamun being one such example).
Beyond its use for religious purposes, gold’s malleability and tarnish-resistance made it a practical metal that was used for art and decoration. The Romans even used gold to create dental crowns and bridgeworks (something we still do today).
Gold as currency
As civilizations evolved, gold started to take on the role of money. Gold coins became a standard medium of exchange across the Persian, Greek, and Roman empires amongst others. These coins offered a trusted way to facilitate trade and exploration with different cultures.
During the Age of Exploration, the search for gold ended up playing a huge role in human history. For example, the explorers Christopher Columbus and Hernan Cortes were funded by the hope of discovering new gold reserves. They not only found gold, but ended up colonizing the Americas and expanding European empires.
In modern times, gold served as the foundation of the Gold Standard, where governments tied the value of their currencies to specific amounts of gold. Even after the standard was abolished in the 1970s, central banks around the world continue to hold vast reserves of gold. Today, the world’s central banks hold about 35,000 tons of gold – equal to about 20% of all the gold ever mined.
Properties of gold
You can also understand gold’s value by learning how it stands out amongst other elements. We explore gold’s unique physical and chemical properties below.
Physical properties
Gold’s physical properties include:
- Malleability: Gold is the most malleable metal. One single gram of gold can be beaten into a sheet measuring up to one square meter, and an avoirdupois ounce can be stretched to cover around 28 square meters. This malleability makes it easy for gold to be shaped into coins, jewelry, and other designs without breaking.
- Ductility: While gold’s malleability allows it to be hammered into sheets, its ductility means gold can easily be stretched into long, thin wires without breaking. In fact, gold can be stretched into a wire that’s so thin it can be measured at the width of a single atom.
- Color: Where most metals are silvery white or grey, gold has a natural reddish-yellow hue that makes it stand out even more.
Chemical properties
Gold’s chemical properties include:
- Resistance to corrosion and tarnish: One of gold’s greatest properties is that it does not rust, corrode, or tarnish when exposed to air or moistures. It’s considered to be the most noble of the noble metals, able to last centuries without deteriorating.
- Chemical inertness: Gold doesn’t easily react with most chemicals. It tends to remain stable in harsh environments, which is why it’s widely used in electronics and medical implants.
Uses of gold
The three main uses of gold (besides investment) are for jewelry, technology, and medical applications.
Jewelry
Most gold today goes towards making jewelry, where it’s usually alloyed with other metals like copper, silver, or palladium to create different purities like 22k, 18k, 14k, and 10k gold.
Technology
Industrial use of gold accounts for about 10% of global demand. The metal is especially important in producing corrosion-free electrical connectors used in computer chips, smartphones, and other devices. Only small amounts of gold are needed – for example, a typical smartphone contains about 50 milligrams of gold – but when you multiply that by the roughly one billion phones produced each year, it adds up to be significant.
Medicine
Gold is also used in healthcare and medical research. Certain gold compounds, like sodium aurothiomalate and auranofin, have anti-inflammatory properties that are used to treat rheumatoid arthritis and other conditions. The isotope gold-198 has also been used in nuclear medicine to treat some cancers.
Gold alloys are also used in restorative dentistry, especially for making crowns and permanent bridges. Its biocompatibility means it doesn’t react with bodily tissues, making it extremely useful in these applications.
Economic factors
Now we know what makes gold so unique, let’s explore some of the factors that influence gold’s price in the financial markets today.
Gold supply and mining production
Like any commodity, gold’s price is driven by the laws of supply and demand. What makes gold different to other commodities, however, is that annual mining production only adds about 2% to 3% to the existing stock of gold. This relatively slow growth means that gold prices are driven more by shifts in demand or sentiment rather than new supply.
That said, gold mining production still plays a role in its value and any changes in output, such as due to new discoveries, technological advances, or tighter regulations, can influence prices. For example, stricter environmental regulations and higher extraction costs have made it more difficult to develop new gold projects, which potentially constrains future supply and drives prices higher.
Central bank reserves
Central banks buy gold bars to diversify their reserves, protect national wealth, and hedge against economic instability. Their buying and selling decisions can significantly impact global gold prices by either increasing/reducing available supply and demonstrating confidence in gold as a strategic asset.
In more recent years, central banks in emerging markets have increased their gold holdings as part of an effort to reduce reliance on the U.S. dollar, a factor that has contributed to rising prices.
Inflation and the value of the U.S. dollar
Gold is dollar-denominated, which means it’s priced in U.S. dollars. Because of that, it tends to have an inverse relationship with the U.S. dollar. This means that when the dollar weakens, gold becomes cheaper for international buyers, which boosts demand and drives up prices. When the dollar strengthens, the opposite tends to happen.
Inflation can also play a role in how much gold is worth. Gold has historically been viewed as a hedge against inflation, helping preserve purchasing power when paper currencies lose value. When interest rates are low compared to inflation, the opportunity cost of holding gold (which doesn’t yield income) decreases, making it more attractive to investors. This relationship isn’t as concrete, however. In the mid-2020s, for example, gold prices continued to increase even when inflation and interest rates came down.
Safe haven demand
Investors often flock to gold as a safe-haven asset during periods of market volatility, geopolitical tensions, or economic crises. During these times, gold becomes especially attractive thanks to its physical tangibility, historical role as a stable source of value, and lack of direct correlation to most financial assets. This is why gold demand often increases when investors are panic-selling stocks, bonds, and other traditional investments.
Market demand for gold
Gold is also influenced by market demand, including consumer and industrial use as well as investor demand.
Consumer demand
The largest demand for gold comes from the jewelry industry, which accounts for about 50% of annual global consumption. In many cultures, like India and China, gold jewelry serves as both adornment and store of wealth and its demand often spikes during predictable events like Indian wedding season or Chinese New Year.
The technology sector is another source of gold demand, mostly due to gold’s unique physical properties like conductivity, malleability, and corrosion resistance. Gold is used to produce a range of electronics, including smartphones and medical devices.
Investor demand
Investor demand for gold has increased since the early 2000s, with specialized products like mutual funds and exchange-traded funds (ETFs) making it easier for both retail and institutional investors to gain exposure to gold without the complexities of physically owning gold bullion.
When investors buy shares in gold-backed ETFs, the fund buys and stores physical gold to match the holdings, creating a direct link between investment flows and real-world demand for physical gold. This means that buying gold ETFs can increase gold prices just as much as buying physical gold.
Comparison with other metals
Below, we look at how gold compares to two other widely used metals: silver and copper.
Gold vs. silver
Gold and silver have been used as stores of value for thousands of years, but gold has always been considered more valuable than silver. There are two key reasons for this:
- Gold is rarer than silver in the Earth’s crust
- Gold is resistant to corrosion and tarnishing while silver tends to oxidize and tarnish over time.
Gold vs. copper
Copper is an important industrial metal that’s used in electrical wiring, plumbing, and construction. Like gold, copper is highly conductive and malleable. That said, gold is much rarer than copper and more resistant to corrosion, hence its higher value.
