Gold: The World's Most Valuable Metal Explained

The history of man’s relationship with gold dates back many millennia. Gold was so valuable in ancient civilisations, primarily due to its captivating golden colour—a trait that still draws attention today. This begs the question: why is gold still so valuable today?

Initially, people thought of gold as a decorative item. Over time, countries, banks, and societies started to use it as currency for centuries, until the end of the Gold Standard. Although it no longer backs the world’s currencies and provides them with value, gold is still one of the world’s most expensive precious metals.

Investors seek gold to diversify their portfolios and protect against market turbulence. People from around the world keep an eye on the daily gold price to keep track of their investments. But what makes gold a precious metal? We explore what’s behind the value of the rare metal and why investing in gold is worthwhile. We also explain why people worldwide long for this most valuable of metals. 

Gold is a Store of Value

The World Gold Council estimates that humanity has only been able to mine 208,000 metric tons of gold, most of it since 1950.

The original reason why gold was used for jewellery was its considerable decorative appeal. This has been the case since before recorded time. Even today, nearly half of all mined yellow gold becomes jewellery.

People around the world revere this most valuable metal. It goes beyond simply using gold coins as a means of exchange. In South America, the Incas and other Andean communities believed gold was “the sweat of the sun.” Ancient Egyptians believed gold was the flesh of the sun god Ra. Hindus and Jain communities in India mark births and marriages with gold, symbolising wealth and prosperity. Today, India remains one of the world’s largest markets for gold bullion and gold coins.

Its appeal is not just decorative, as the unique chemical properties of this noble metal add to its value. Its resistance to corrosion makes it a sought-after commodity. It doesn’t tarnish or degrade in contact with other elements, so it retains its same lustre and quality over centuries. 

The fact that it doesn’t have a high melting point makes gold more malleable than other noble metals. This discovery encouraged early civilisations to use it to create beautiful jewellery.

Beyond its value as a precious metal, gold has practical applications in various industries.  Gold’s dense metal properties and ability to withstand high temperatures make it an ideal material. For example, catalytic converters and electrical contacts rely heavily on gold. 

So, as well as the aesthetic appeal that has given it value over thousands of years, market demand from the industry pushes the price up even further.

The Cost of Gold

Gold’s enduring allure, combined with its use in various industries, pushed the price of an ounce of gold past $2,110 in December 2023. This was an all-time high against the greenback.

The relative rarity of gold is a key pricing factor, but more factors contribute to its unwavering value than supply and demand.

Silver has an annual production of about 1 billion ounces compared with about 150 million ounces of gold. That doesn’t mean that gold costs eight times as much as silver as the supply differential would suggest. In fact, gold trades between 75 to 90 times the price of silver.

Countries like South Africa, the United States, Russia, and Canada are among the top producers of gold. The United States and Canada have extensive gold mining operations that significantly contribute to the global gold supply.

The gold market is massive. For example, 90 tons of gold is around 5% of the gold mined in the world every year. If you want to know how much 90 tons of gold is worth, it’s US $5.6 billion at today’s (2023) prices. That’s more than the GDP of some countries like the Maldives or Bhutan.

Investing in Gold

People invest in this most expensive metal because of its proven ability to hold its value over centuries. This has led many to consider gold a good hedge against inflation.

It’s a common myth about gold that you need to be rich to invest in it, explains Alex Boast, finance and web3 expert:

“Investing in gold is easy, quick, and affordable if you find the right provider: look for one that doesn’t charge high fees.“

There is often much less trust for fiat currencies like the dollar, Euro, and sterling than for gold. 

Central banks, which regulate fiat currencies, can print money at will. This capability to essentially ‘create’ money out of thin air raises concerns among many about the inherent value of such currencies. The perception is that this unchecked monetary expansion could inevitably impact their value

Gold was the backbone of many of the world’s currencies for centuries. Central banks were required to hold an equivalent amount of gold for every unit of currency in circulation, such as the dollar or other forms of money. »

As mentioned earlier, this was the Gold Standard that governments moved away from in the 1970s. Despite this, central banks have continued to hoard vast quantities of gold. They currently hold about 35,000 tons, or about a fifth of the gold ever mined.

At times of crisis like war or recession, investors often flee to “safe-haven” assets like gold. Many consider holding an ounce of gold safer than having individual stocks or tracking the broader index when it’s plunging.

What drives gold is different, too. The share prices of companies listed on the stock market change to reflect the results of economic data. Gold’s relatively tiny industrial usage means sentiment drives it more than firm numbers.

This lack of correlation with the broader economy and other asset classes makes gold attractive to investors. Many hold between 5 and 10 percent of their portfolio in this precious metal. When other asset prices fall, investors rely on gold to tick over steadily in the background, protecting the value of their portfolios. The value of gold and how precious we consider it to be is because of its inherent desirability. This has been with us from Ancient Egyptian times, and the chances of that appeal dwindling any time soon seem remote.

Make time for this valuable metal in your portfolio and discover how gold supports a new wave of cryptocurrencies.

Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience in writing about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News. 

As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewable energy and the challenges of avoiding greenwash while investing sustainably.

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.