Why Is Gold So Valuable?
One question that comes to mind when dealing with this whole “cash for gold” phenomenon is “why is gold so valuable?”
Most people are aware that gold is used as the basis for the monetary system in the U.S. (hence the term “the gold standard”). This means that all of the U.S. currency is backed by a gold reserve that guarantees it’s value. This gold reserve is the United States Bullion Depository (Fort Knox). It’s a heavily fortified vault which stores a large chunk of the U.S. official gold reserve. There really is a stash of gold that is the collateral for the U.S. currency.
So why is gold so valuable? The short answer is because the market says it is. Through years of trial and error, people have used it and valued it enough to use it as money. Gold has passed the test of time and there are several reasons why:
It’s rare – Gold represents about 5 parts per billion of the earth’s crust. Extracting gold is an expensive, dangerous and difficult process. Part of the appeal of gold is that is is difficult to obtain and very labor intensive.
It’s virtually indestructible – Gold doesn’t tarnish or decay over time. It’s inert and doesn’t interact with other elements.
It’s flexible – You can stretch it and cut it, pound it thin, roll it, etc.
Controlled production – Only so much gold can be mined in any given time. Unlike paper currency, the government can’t just make more gold.
All of these factors go into making gold valuable. It’s shiny and pretty, can be shaped into different forms, mixed with other metals and doesn’t wear out. It’s also rare and hard to get more of. There will always be a demand for gold (or so it seems). One aspect of gold that is of interest to us is that as other forms of currency falter (such as the U.S. economy crashing), gold prices go up. Because there is a steady demand for gold, it is a more stable investment. If the U.S. dollar were to lose all value tomorrow, you could still trade gold for goods and services because almost everyone recognizes it’s worth. That’s why it’s so easy now to get cash for gold – the gold buyers understand that gold has a value and are willing to exchange paper money for it.
The price of gold is always fluctuating, since it is traded on the open market (just like the stock market). It is a commodity, meaning that large quantities of similar quality can be traded. An easy way to find out the current price of gold is to visit the Kitco website at www.kitco.com. They even provide HTML that you can embed in your site to display a chart or graph of the current gold prices.
Tags: bullion, currency, gold standard, price of gold, rare, value
