Gold has been around since ancient times, taking various shapes and forms. Its brilliant color and shine have captured our imaginations for centuries. In 1848, the gold hype was born in the United States when James W. Marshall discovered it in the California foothills.
There is an ongoing debate about whether or not gold carries an intrinsic value. Some think gold is just a collectible, while others think it should replace the paper dollar as a form of currency. So why is gold so valuable?
Characteristics of Gold
What makes gold attractive? Gold’s sunny, rich, bright, and orange-yellow color captures our imaginations -- we’re undeniably drawn to it. When combined with other metals such as silver, palladium, or copper, its color modifies to white or rose-gold. But is it the color alone that makes it popular? Sort of -- but human psychology plays a huge role.
Gold is a dense metal that melts easily. Goldsmiths use molds to create jewelry, gold coins, gold bars, wires, and more. Because gold does not oxidize, its color and beauty last longer than other alloys that tarnish and corrode.
Did you know that gold is a conductor of heat and electricity? Copper and silver are ranked as the best, but gold comes in a close third. Why? Because gold is pliable. One ounce of gold could be stretched thinly across 50 miles. That’s a long wire!
Have you been tricked into thinking you have gold, but it turns out to be fool’s gold? It’s a common occurrence. Fool’s gold takes its form in three different minerals with a strong resemblance to gold. Pyrite is one of the most common. The other two types are mica and chalcopyrite. These minerals mimic the color of gold but don’t have the same consistency and are more crystallized.
Gold Mining and Where To Find It
Mining for gold takes time from the discovery stage through refining it. During the mining phases, gold is both an element and a mineral. Gold is found all over the world. The bad news is that large deposits of gold are scarce and hard to locate.
Large quantities of gold are mined from China, South Africa, Australia, and the U.S. It’s embedded in rock veins or deposits found in river banks or streams. It has even been discovered in the ocean, though a cost-effective process has not been invented to draw it out and still make a profit.
As mines begin to slow down on the production of gold, it can always be recycled and reused.
How Gold Is Measured
There are key units of measurement to weigh gold -- whether it’s gold dust or gold nuggets -- as well as how to measure levels of purity and fineness.
The weight of gold is measured in grams, troy ounces, and tonnes. For perspective, a troy ounce of gold is equal to 31.10 grams. Need a visual? One gram of gold is nearly the size of a push pin or paperclip. One troy ounce is about the size of a small die or an old silver dollar. A gold bar weighing one kilo is similar in weight to that of an Apple iPhone.
If you have gold, place it in water. Does it sink? It should. Gold weighs 19.3 times more than an equal volume of water. If it floats, it doesn’t mean it isn’t gold. It could mean that it contains a higher percentage of other alloys.
To determine if you have pure gold, use karats with a “k.” Its sister term carat with a “c” refers to the purity in gemstones. The karat system ranges from 0-24: the higher the karat, the more pure and expensive the gold. You can perform at-home tests to check the purity level but look for a stamp on the gold first. If it is received from a reputable source, a hallmark indicating the number of carats of millesimal fineness should be visible.
Millesimal fineness is represented by a three-digit number indicating the purity of the gold in parts per thousand. Similar to the karat, this number is stamped onto the gold piece. At 24 karats, gold is at its finest. On the millesimal fineness scale, it’s represented as 999.
Who Uses Gold?
One of the first uses of gold dates back to Ancient Egypt. It was fashioned into jewelry and worn to exhibit wealth, power, and excellence. As history progressed, the demand for gold became split between consumables and jewelry. Jewelry takes the lead, absorbing half of the world’s demand. Consumables follow at 40% with the remaining 10% for technology and electricity.
Even though gold remains in demand as a fashionable item, its uses have certainly expanded:
- Dentists: In the dental industry, gold is used for plating. Ever need a filling or a crown? Its use is not specific to looks. Instead, gold is non-allergenic. Also, since it’s such a soft metal, it is easy to work with.
- Medical Doctors: Did you know gold is used in the medical field? Gold nanoparticles are modeled into a medication to treat medical conditions such as rheumatoid arthritis (RA) and autoimmune diseases.
- Aerospace Engineers: Spacesuits use gold to repel radiation from the sun. A thin coating is applied to the glass of the headpiece. Since it is a heat and electricity conductor, it also makes an appearance in the circuitry of spacecraft. What does it do? It reflects radiation, as it does with the space suits, and stabilizes the spacecraft's temperatures.
- Electronics Manufacturers: Own a computer or a touchscreen at home? Advanced technology transforms the use of gold, using nanoparticles in electronics. Gold is pliable and is used as coatings for connectors and wires.
Outside of the industrial world, gold bars and gold coins are used as a form of investment, acting as an inflation hedge.
Gold as an Investment
No one uses gold certificates today when traveling to the grocery store or purchasing from retailers. Richard Nixon stopped that back in 1973 when he cut the tie between gold and the US dollar. But, that did not stop people from collecting and investing in it.
Before investing in gold, assess your portfolio and identify risk. Gold serves as a balancer and a powerful financial advantage. It comes in different investment options too. You can own physical gold coins or gold bars or invest in gold futures, stocks, and mutual funds. If you decide on coins or bars, consider the need for storage and an increased tax rate.
The Value of Gold
So how does all of this determine that gold is valuable? Well, think about what would happen if the dollar's value depreciated to zero. Silver and gold may be next up for bid. People would find something to use to exchange goods and services as a replacement.
People have a sense of pride when it comes to owning gold. It’s portable, hard to pass off as fake, and lasts for a lifetime. Gold items usually end up as family heirlooms and are locked away from wandering eyes.
In today’s economy, gold is traded using a spot price, locking in the exchange rate of gold daily. What influences it? Supply and demand, the depreciation of the dollar, and market conditions are all players in the game. Prices are set by the London Bullion Market Association or LBMA.
Spot prices are used as the baseline when trading gold immediately. For example, if you have gold coins to sell and visit a coin dealer, they will use the spot price to make you an offer.
The Bottom Line
Gold has been used as an exchange medium for goods and services throughout history. It is one of the most rational decisions because there is enough to go around; however, not everyone can produce them. Gold prices are peaking with demand and supply, making it wise to include it as an investment. Its value holds strong and is only expected to increase over the years. It serves as a backup to the paper dollar used today.
Do you have an interest in investing in gold but couldn’t upfront the cost? Options are available to you at Acre Gold. Visit our webpage today for more information.