Why is gold precious?
And how it wins in the Periodic Table Elimination Game which sounds like the least fun game ever but surprisingly turned out to be 15–20% more than the average amount of fun.
But like seriously? There doesn’t seem to be anything inherently valuable about gold. It’s used in jewelry, electronics, olympic medals, and maybe a few other things, but is that really why gold is considered precious?
Investors invest in gold because they believe it will retain its value in the future. Unlike other commodities like oil, cotton, or oranges, gold does not actually get consumed. It can change shape and be used in a number of ways, but its chemical composition always stays the same. Check out this chart for the price of gold for a 40 year span:
I don’t really know where I was going by putting up this chart, but now that it’s already here, let’s talk about what the hell went on around 1980. The increase in gold prices during that time was a result of multiple factors — most notably, the Soviet intervention in Afghanistan, the Iranian Revolution (+hostage crisis), and inflation fears. In times of economic uncertainty like those, and even COVID-19 for that matter, people often turn towards gold for wealth preservation. It is considered a ‘safe haven’ when you’re fearful that your equity or cash might lose its value (The subsequent fall in the gold prices was in part due to interest rate hikes by the Fed and Silver Thursday).
And now that we’ve been completely sidetracked, let us come back to the main point. Gold has been seen an as investment in recent years, but how did the fascination with gold start? Or more importantly, why are we still fascinated by gold?
Everyone likes gold
Gold was fancied universally — civilizations who had never interacted with each other somehow both valued the same thing.For example, the Incas and the Spanish Conquistadors were from different continents, did not have a language in common, had completely different customs, yet somehow both were hell bent on getting this yellowish metal.
What might be the reasons? Gold is often seen as a symbol of purity and beauty. Other than being a colored metal, it has a few useful properties — it doesn’t corrode, doesn’t get oxidized, can conduct electricity, and is malleable which means you can pound, hammer, melt, and shape it in almost any way you like. The last point is specially important because most the of the early usages of gold was to make jewelry and idols of worship.
Our ancestors’ search for a medium of exchange
Eventually people grew tired of the barter system. It required a double coincidence of wants — if I want some chocolate and want to give away an apple, I would need to find someone who would take my apple and give me some chocolate. And I had to keep waiting until I found such a person. Enter a medium of exchange — an intermediary item that was widely acceptable and could be exchanged for any service or good, including chocolate and apples. It could take any form as long as you believed in its value, your neighbor believed in its value, and your neighbor’s best friend believed in its value; cowrie shells work, cigarettes if you’re in jail, or something more familiar perhaps — paper made from cotton fiber with Mahatma Gandhi’s or Benjamin Franklin’s face on it. At some point in history, however, it became coins.
Now what could the coins be made of?
The Periodic table elimination game
Now let’s try to see which elements could be the most suitable for making coins. There are 118 elements in the periodic table at this point in time, so I did what seems logical — I actually tried crossing off each element that didn’t fit (You may be in awe with this amazing dedication to the spirit of inquiry, but the real reason is that it gave me an excuse to borrow dad’s apple pencil. I’ve only ever used pencils that costed peanuts so it blew me away to think that this pencil costed the same as like 100 kgs of peanuts). Let’s start off with this pretty looking Periodic Table:
1. Eliminate Gases and Liquids
Well, this one seems obvious. Like how would you give someone 1 gram of a gas as payment? Even if you could, noble gases are colourless, odourless, and tasteless — seems like a really bad medium of exchange. So we eliminate all elements that are gases (noble gases, halogens) or liquids (mercury, bromine) at room temperature.
2. Eliminate Alkaline and Alkaline-Earth Metals
Okay, now let’s get rid of the left-hand side of the periodic table. These metals have strong exothermic reactions with water, and you obviously don’t want your money to explode as soon as it starts raining.
3. Eliminate Radioactive elements
“There you go — 2 plutonium coins and a 7% chance of cancer.”
This step also gets rid of the 24 synthetic elements (atomic numbers 95–118), that have been created in labs by humans, and do not occur naturally on Earth.
4. Eliminate Rare-Earth Metals
The first rare-earth mineral was discovered only in 1787, so our ancestors probably didn’t know what was up with these. Most rare-earth metals look the same and are mildly toxic anyway. We got rid of the Actinides already because they are all radioactive, but this step remove the Lanthanides as well (lets be honest, 9 out of 10 people can’t name a single lanthanide).
Fun fact: contrary to what the name says, rare-earth metals are actually not so rare. Some are even more common in the Earth’s crust than lead or nitrogen.
5. Eliminate poisonous/toxic elements
You probably won’t ever have to eat your money, but you also wouldn’t want to choose only 1 between being rich and not being poisoned to death.
6. Eliminate elements with other miscellaneous drawbacks
There aren’t too many elements left as you can see in the previous figure. This is the point where I do some hand-wavy stuff and get rid of a bunch of elements — Copper corrodes, Aluminium is hard to produce, Titanium and Zirconium are hard to smelt, Bismuth is brittle, Iron rusts, and so on.
At this point, all the elements remaining belong to a category called Noble Metals, which are usually resistant to chemical reaction, even at high temperatures.
7. Eliminate if too rare
Ruthenium, Rhodium, Iridium, and Osmium place amongst the least abundant elements in the Earth’s crust. Platinum too is so rare that the entire world’s production could probably fit in your living room.
At this point, we’re left with silver and gold as two possible options. And that’s what one of the earliest recorded medium of exchange, the shekel, was made of. This coin was made out of electrum, a naturally occurring alloy of gold and silver.
Fun fact: The current three-medal format in the Olympics was introduced in the 1904 olympics and for the first 3 iterations (1904, 1908, 1912), the winners got medals made of pure gold. Currently however, Olympic gold medals are made up of 210g of silver and coated with 6g of 24 carat gold.
8. We strike gold
Silver tarnishes. Gold does not. A noble metal too, gold doesn’t rust, tarnish, or form an oxide film on its surface when it comes into contact with air — the first coin made of pure gold would look almost the same now as it did when it was first made.
So what does this process of elemental elimination tell us about what makes a good currency? It has to be something that’s stable, non-toxic, not extremely common, not extremely rare, and quite importantly, solid at room temperature. I think our ancestors had somewhat the same ideas too, and King Croesus of Lydia in 550 BC introduced the world’s first coins made from pure gold.
Social Construction
We could guess at why Gold was popular and valuable and in earlier times. But why does it continue to be so? It’s not too rare but it’s definitely quite rare — nearly all the gold on Earth was formed in supernova nucleosynthesis, and came to Earth via meteorites around 200 million years after Earth’s birth. If all the gold ever produced in the world was collected and packed, it would fill just over three Olympic-size swimming pools. But that can’t be it — Platinum is rarer than gold, yet it’s cheaper.
I think the most important understanding is that, as with the case with any currency, gold is valuable because we, as a society, believe that it is valuable. Societies have always placed value on gold, thus perpetuating its worth. It’s almost like we started valuing gold once upon a time, and we’ve never stopped since. The fascination with gold is so deeply ingrained in human minds that we are often unconsciously drawn towards it, both physically and emotionally.
So the bottom line: The metal is common enough to create coins and jewelry amongst other things, but scarce enough so that not everyone can produce it. Gold is non-reactive, non-toxic, doesn’t rust, and provides sustainable store of value. But the reason that gold provides that value is because we, as a society, decide that it does.
And to sign off with a totally random fact, the Aztec word for gold is ‘teocuitatl’, which translates to ‘excrement of the gods’.
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