Why is Gold so Expensive!
Today we are discussing one of the most desirable commodities in the history. Pirates have plundered it, explorers have searched for lost cities made of it, and failed, Jewellers and fashion houses create beautiful objects from it, investors trade it and even Tech companies need it. Yes, we are talking about Gold !
It’s been used as a means of exchange longer than any other of the world’s existing currency, and because we take it for granted that gold is a measure of wealth, you may have never even asked yourself how it became so valuable in the first place. If this question came to your mind, you’ve probably come to a conclusion that it is worth what it is. Currently over $ 1,700 an ounce (Rs. 50,000+ per 10 grams) of pure 24 carat gold simply because it’s rare and pretty. Yes, those are pretty important factors but there’s quite a bit more to it. Let’s find out why it is so expensive !
1. It is RARE !
No prizes for guessing this one. It doesn’t make it to the list of rarest metals on earth, but it is still pretty rare. For some respective, more steel is produced every hour than the gold that has been extracted from the earth in the entire history ! If you put together all the extracted gold together in it’s purest form, you’d only end up with 1,90,000 tonnes, which can fill 2 Olympics size swimming pools, and compared to other precious metals like Silver — Gold is 10 times more rare.
2. It is difficult to extract…
Mining gold has never been easy. In the old days, gold prospectors used to pan for it, and even today old fashioned images of miners with hats, digging underground in South Africa, or in deep down muddy holes of Brazil still exists, but now it has become less labor intensive and relies on heavy expensive machinery. Either way, if you want to setup a gold mining operation, you would need a lot of capital.
Also, it is not just about mining. Finding a gold mine is difficult itself, and might even need a decade to get one in the first place. It requires qualified experts, including Chemists, Geologists and Engineers. On top of that gold prospectors have to pay the government for licences to explore, and the end result — Less than 1% of the prospected areas end up as profitable mines. So its no wonder when the miners literally hit gold, they demand high prices for it. At the moment, China is the largest producer of gold in the world accounting for more than 12% of the world’s gold production, followed by Australia and Russia taking the second and third spots.
3. It is the perfect metal to make Jewelry.
Of all the things gold goes into, I’ll start with — Jewelry. 50% of the gold mined today, still goes into making jewelry, making things look blingy. In 2019, 4400 tonnes of gold went into it. It just so happens that if you ask the jewelers to come up with an imaginary metal that is perfect to work with, they wouldn’t even want to invent one, they would simply chose Gold, because it ticks every block and its desirable characteristics go beyond just looking pretty.
4. It is easy to Shape.
First lets get a bit technical. It is very malleable. Malleability is measure of how easily you can shape a substance, and Gold is the Most malleable of all the metals, in fact you can take a single ounce of gold (31.10 grams of gold) and hammer it out into a 300 square feet sheet. Which explains how you can make things look shiny and golden without actually needing that much gold. That’s why you can fing so many gold plated articles, watches and other items that you want to dazzle people with. You can make it so thin that you can literally eat it after adding it to your food.
5. It keeps it Shine and It is Unique.
Gold keeps its shine for a very long time. Unlike silver, it does not tarnish or need constant polishing. Unlike copper, it does not oxidize and turn green. It keeps the shine almost forever. The reason being, it is extremely nonreactive. This non-reactive property also gives it another couple of advantages — for example, unlike lead it is non-poisonous, so as shown earlier — you can eat it if you like to and it will taste like nothing. It is not only rare and pretty, it is also unique. The color of Gold is — Golden. Unlike silver, that shares its color with other rare metals like platinum and palladium.
6. It is the Perfect form of Exchange.
For centuries, it is the perfect form of exchange. The oldest gold coins we know of were made by King Croesus of Lydia (nowadays Western Turkey) in about 540 BC and there are some pretty good reasons why gold was chosen to make the earliest payments. It’s rare but not too rare, platinum would have been impractical as there’s so little of it around totally aside from the fact that it’s harder to work with and ancient cultures probably didn’t even know platinum existed. Common metals wouldn’t have fit the belt because well they’re too common to be worth that much. Copper was used by the ancient Chinese but it oxidizes. It’s true that silver also fit the bill and was used as currency alongside gold but as gold is about ten times more rare than silver gold has always been seen as Silver’s prettier classier sister.
7. It’s a highly prized investment.
More recently governments backed up their paper currencies with gold reserves that they kept in their vaults this practice ended in the second half of the 20th century. The USA stopped pegging the dollar to gold in 1971 and Switzerland was the last country to get rid of the gold standard in 1999 but banks still do hold gold reserves and demand from central banks continues to be one big reason that it’s price stays so high in 2018 central bank’s bought 651 tons of it that’s about twenty seven billion dollars worth and old prices at the time and of course investors use it to diversify their portfolios specifically as a form of security against currency devaluation and inflation gold is seen as a sort of safe haven in times of financial uncertainty in the 2008 financial crisis it shot up in value as investors all over the world were losing faith in the world’s major currencies and turning to gold it was at this time it went above the $10,000 an ounce mark and in the corona virus crisis you can bet your bottom dollar that yes the price has shot up further from a high of $ 1,542 an ounce in 2019 (Rs. 37,000+ per 10 grams) to its current price above $1,800+ an ounce (Rs. 50,000 + per 10 gram) in July of 2020 and crises aside historically it increases in value faster than the rate of inflation from around $300 an ounce 50 years ago to above $1700 now it’s increased almost six times why is that well let’s think about it what makes any investment whether stocks currencies or commodities more or less valuable is their perceived value and how confident people are it’s going to keep that value remember that gold is being used as a store of wealth for over two and a half thousand years with a history like that there’s no currency or company on the S&P 500 that can compete with that and with important customers like central banks as well as the world’s best-known fashion houses there’s no reason to think its price is going anywhere but up in the long term.
8. Tech companies need it !!
So we all know Gold’s pretty and people are confident that it will keep its value but totally aside from putting it in a necklace or keeping it in a vault it’s got practical uses too. As if it weren’t enough being prized among the world’s most prestigious jewelers and shrewdest investors there’s another group that’s also buying up gold tech firms gold is one of the best conductors of electricity this means it’s used in small quantities in wiring and electronics where it’s needed for highly specialized purposes. Take a look at the device you’re using to watch this video on, you guessed it… it contains gold sure it’s only used in small quantities but this use accounts for about 14% of gold and it’s also used in nuclear technology in satellites and radiation shielding in medicine and dentistry to coat teeth and even in injections to relieve pain for arthritis sufferers and the visors and astronauts helmets are also coated in thin transparent layers of gold which reflects heat and the sun’s glare.
9. Gold also has a sense of mystery…
This might seem like a strange one to put on the list but stop a moment to think about the most prestigious luxury brands in the world. They have an allure about them almost a sense of magic whenever you hear their name this keeps customers coming back more and makes investors confident in them gold although it isn’t a brand has this wow factor in spades or maybe we should say in carats. It’s had it for centuries since ancient times it’s been used to make items for royalty and religious rituals you can even read about it in the Bible. When we visit opulent palaces or ornately decorated churches it’s all gold that dazzles us more than anything else. Nowadays the most fashionable brands make their most luxurious pieces out of it
10. It is a symbol of prime reward.
Prestigious awards from Olympic medals for first place, Oscars, Grammys, Nobel Prizes and obviously the Golden Globes are made of it. It’s wowed us with its associations of nobility the divine and luxury and it’s even embedded itself into our way of thinking look at the number of expressions in English or any other language for that matter that use it ‘to be worth your weight in gold’, ‘to strike gold’, ‘to be like a gold dust’ it’s almost as if gold has its own marketing department that’s been working overtime the last six thousand years that since the first known gold artifact was sculpted and all of this means that gold is instilled in our minds as one of the most desirable commodities imaginable and this can only add to its high price but will gold hold its value the answer to this one is almost certainly yes and it could start to rise even faster in the not-too-distant future it’s estimated that stocks of gold that are still below ground and that we can realistically mine are limited. They could run out in just twenty years from now ,but there’s no sign of demand shrinking. Even if the world lost interest in beautiful jewelry overnight as if that’s about to happen, with its practical applications for computing and technology gold would still be a prized commodity and that could mean that in the years to come its value will rise even faster.
And let’s end this with another interesting prediction about the future of gold scientists know that gold can be found on meteorites and possibly on Mars Mercury and Venus as well this means that with space exploration forging ahead the next gold rush could be in Space !