Gold, silver, platinum, and palladium are all precious metals. Per the Royal Mint, three key factors are integral to this classification. First, “It must be a naturally occurring metallic element.” Second, “It must be rare.” Third, “It must be valuable.” When it comes to this third and final factor for gold, though, I want to preface that gold’s value is rather multifaceted.
Inherently, gold presents intrinsic value given its scarcity, demanding retrieval processes, and advantageous natural properties. Culturally, social value has been assigned to gold as it has connected civilizations and geographies as a borderless currency and via beautiful gold art and cultural artifacts. It also holds economic value through its versatility and adaptability, making it ideal for use across a diverse range of industries. Specifically in the precious metals industry, gold collectibles offer numismatic value as gold historically has been a reliable store of wealth.
Below, I will dive into more detail about each of these four points as they relate to gold’s value.
Intrinsic Value
To start, let’s take a deeper look at intrinsic value. At a high level, intrinsic value refers to the genuine value of something, which is distinct from any perceived value. For gold, its intrinsic value comes from a combination of considerations.
Gold’s Scarcity & Demanding Retrieval Processes
Gold is a heavy metal and one of Earth’s rarer elements, created through the collisions of neutron stars. Due to its heavy metal status, gold subsequently gravitated to the Earth’s core. As a result, substantial volumes of gold are in short supply near Earth’s crust. While hard to find, Earth sciences professor, Yana Fedortchouk, says gold is possible to locate in small amounts as it is “‘present in a large variety of rocks’” within the Earth’s crust.
Knowing where to find gold is just one factor in its retrieval. Fedortchouk adds, “‘To form a deposit, it needs to reach certain concentrations to make mining economically feasible.’” In the case of hard rock mining, gold mining exploration requires special equipment and expensive machinery, upwards of hundreds of thousands of dollars, to process thousands of tons of rock to reach gold deposits. Not only are the proper tools required, but hard rock mining calls for the skill set and collaboration of engineers, chemists, geographers, geologists, and other specialized individuals. In sum, gold’s supply and demand contribute to its intrinsic value.
Advantageous Natural Properties
Another component contributing to gold’s intrinsic value stems from its natural properties compared to the other 117 elements on the periodic table. Gold is relatively inert, meaning it does not react to most substances. It is soft, pliable, and resistant to tarnishing.
As explained by Britannica, gold can conduct heat and electricity, is malleable, and does not corrode. These properties make gold useable for many applications. Electronics like smartphones, computers, and cameras also use gold, given its ability to conduct electricity. Similarly, in the case of appliances like air conditioners, stoves, and refrigerators, gold’s capabilities are used in circuit boards and thermocouples.
Social Value
Fundamentally, social value indicates the importance, significance, or meaningfulness that we assign to something. To recognize the social value of gold, it is necessary to explore its journey across continents, the bridges it has built as a borderless currency, and the beauty of its byproducts.
Borderless Currency
As early as 600 BCE, Western Asia Minor set a precedent for the exchange of goods and services by moving away from bartering toward the adoption of minted currency. As far away in North and South America, this type of currency continued to facilitate interactions between people — “When Spanish explorers first travelled to the ‘New World’ – the Americas – they met a native culture who lived entirely different lives and spoke different languages.
Beautiful Byproducts
Gold’s symbolic representation of opulence has not faded. As the article from mining-technology.com reiterates, “Whether it is wedding rings, awards or even money, few substances occupy as prominent a space in our lives as gold.” Whether found in our homes or on the world’s biggest stages, gold is a cherished symbol of natural beauty, value, and notoriety. It’s quite impressive that a gold accolade can represent a range of meanings, from a simple piece of jewelry to the culmination of an entire life’s work, a high mark of achievement, and so much more.
Economic Value
Economic value refers to the positive impact that a good or service brings to the economy. In the context of this article, economic value implies the reach that gold has across industries given its versatility and adaptability. After all, some of the industries that I mention below are valued at billions or even trillions of dollars in America.
Jewelry Industry
In the jewelry industry, gold is used because of its high luster, ability to be hammered or cast into various forms, and its resistance to tarnishing. Here, you can find gold wedding rings, gold bracelets, gold earrings, and gold necklaces, and individual pieces vary in price based on karats of gold (14K, 18K, 24K, etc.) and weight in grams. But, when paying a pretty penny for genuine gold jewelry, it should not be lost that each one is an art form in its own right. Intricate rope chains, serpentine chains, Cuban links, and herringbone links require artistry, craftsmanship, and close attention to detail.
Medical Industry
In the medical and healthcare fields, gold is also relied upon. Gold is not chemically reactive, meaning it is unlikely to react to other substances which makes it unlikely to corrode. Over 2,500 years ago, gold was first used in dentistry, and now, there are gold tooth crowns and fillings or inlays. Additionally, gold is biocompatible making it useful in other medical procedures outside of dentistry. Gold will not cause negative reactions when interacting with the skin, organs, or other tissues of patients. Notably, gold has helped in the treatment of rheumatoid arthritis and was a remedy for conditions such as lagophthalmos.
Renewable Energy Industry
In the renewable energy industry, gold and other precious metals play a crucial role in fostering sustainable energy practices through hydrogen-based economies, solar energy, and the manufacturing of smart vehicles, electric vehicles, hybrids, plug-in hybrids, and fuel cell vehicles. Thanks to precious metals and catalytic converters, we can reduce harmful exhaust emissions in the automotive industry, too.
Numismatic Value
Lastly, numismatic value can be summed up as value that precious metals have historically been able to retain. In the industry, collectors, hobbyists, numismatists, and professionals alike appreciate gold in a variety of forms, such as cast gold bars, minted gold bars, “contemporary coins,” or “vintage” coins.” Below are two instances in which individuals may turn to gold’s numismatic value.
Economic uncertainty
As I have written about in previous blogs, precious metals may offer distinct opportunities to address broad patterns of economic uncertainty. Patterns to pay attention to include weakening currencies and inflationary impacts on currency buying power, the rise and fall of changing asset classes, and (hyper)inflation, deflation, and recessions.
Retirement
Retirees can use Gold IRAs, or Individual Retirement Accounts, which allow individuals to hold gold bullion coins or other precious metals instead of paper-based assets. And, they may help in providing some diversification, inflation hedges, and potential protection from market volatility. IRA-eligible gold products include the American Eagle Gold Coin and the Austrian Philharmonic Gold Coin.
Experiencing Gold’s Value for Yourself
By learning about gold’s value in these four ways, it’s easy to see how gold has captivated generations. If you are interested in the possibility of buying gold yourself, browse Rosland Capital’s gold offerings.
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