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Dec 15 2018 12:21 EST

Why Is Gold Valuable?

Interview: Professor Andrea Sella (University College London)



Mankind’s attitude towards gold is bizarre. Chemically, it is uninteresting – it barely reacts with any other element. Yet, of all the 118 elements in the periodic table, gold is the one we have always tended to assign superior value. Why not osmium, hromium, or helium, say – or maybe even seaborgium?

Gold, like no other metal, has a fascinating history and a special place in the world. For thousands of years it has been used as an ornament of kings, a currency and standard for global currencies, in competitions as symbol of victory and more recently, in a wide range of electronic devices and medical applications. Ancient civilizations used gold for the decoration of tombs and temples. But why is gold so valuable?

First, it is important to remember some basic concepts about gold. Gold is a dense, soft, shiny, workable, and pliable metal.

It is a chemical element with the symbol Au and atomic number 79. The melting point of gold 1,948°F (1,064°C) and its Boiling point is 5,173°F (2,856°C). The atomic mass of gold is 196.96657 ± 0.00004 u. The density of gold is 19.30 g cm-3.

Some possible reasons for its high value are its unique aesthetic and special properties.

The symbol for gold is Au, from the Latin word, aurum, loosely translated as glowing dawn or glow of sunshine. The english word gold derives from Old English and Germanic origins. The German Gothic language expressed gold with the word gulþa which later evolved into geolu in the Old English language. Geolu is translated to mean “yellow”. It is the only metal of this color. The gold’s characteristic yellow color is due to the arrangement of its electrons. When alloyed with other metals like silver and copper it has different colors, according to percentages of the alloy.


Gold has unique physical chemical characteristics that make it very valuable. As afore mentioned, Gold is the most workable and pliable of all the metals. One ounce of gold can be drawn into more than 50 miles (~264,000 feet) of thin gold wire. One ounce of gold can be beaten into a 0.000018 cm thick sheet covering 30 square feet. Gold also has an electrical resistivity of 0.022 micro-ohm and a thermal conductivity of 310 W m-1, hence, it is very efficient for the transmission of heat and electricity. Gold has the highest corrosion resistance of all the metals and it is corroded only by a mixture of nitric and hydrocloric acid. Gold is classified as a noble metal because it does not oxidize.

The mentioned characteristics are enough to make a very useful and desired metal to not only our ancestors thousands of years ago, but also for us today; thus, it is a very valuable one. It is also important to consider that gold is rather scarce. It is estimated that the whole gold of the planet equals a total of 168,180 tonnes or 5,407,112,558 ounces. To visualize this imagine, let’s imagine a single solid gold cube with edges of about 20 yards (~63 feet). This is about 10 feet shorter than the length of a tennis court.


Professor Andrea Sella pulls out a copy of the periodic table.

“Some elements are pretty easy to dismiss,” he tells me, gesturing to the right-hand side of the table.

“Here you’ve got the noble gases and the halogens. A gas is never going to be much good as a currency. It isn’t really going to be practical to carry around little phials of gas is it?

“And then there’s the fact that they are colorless. How on earth would you know what it is?”

The two liquid elements (at everyday temperature and pressure) – mercury and bromine – would be impractical too. Both are also poisonous – not a good quality in something you plan to use as money. Similarly, we can cross out arsenic and several others.

Sella now turns his attention to the left-hand side of the table.

“We can rule out most of the elements here as well,” he says confidently.

“The alkaline metals and earths are just too reactive. Many people will remember from school dropping sodium or potassium into a dish of water. It fizzes around and goes pop – an explosive currency just isn’t a good idea.”

A similar argument applies to another whole class of elements, the radioactive ones: you don’t want your cash to give you cancer.

Out go thorium, uranium and plutonium, along with a whole bestiary of synthetically-created elements – rutherfordium, seaborgium, ununpentium, einsteinium – which only ever exist momentarily as part of a lab experiment, before radioactively decomposing.

Then there’s the group called “rare earths”, most of which are actually less rare than gold.

Unfortunately, they are chemically hard to distinguish from each other, so you would never know what you had in your pocket.

This leaves us with the middle area of the periodic table, the “transition” and “post-transition” metals.

This group of 49 elements includes some familiar names – iron, aluminum, copper, lead, silver.

But examine them in detail and you realize almost all have serious drawbacks.

We’ve got some very tough and durable elements on the left-hand side – titanium and zirconium, for example.

The problem is they are very hard to smelt. You need to get your furnace up into the region of 1,000C (1,832F) before you can begin to extract these metals from their ores. That kind of specialist equipment wasn’t available to ancient man.

Aluminum is also hard to extract, and it’s just too flimsy for coinage. Most of the others in the group aren’t stable – they corrode if exposed to water or oxidize in the air.

Take iron. In theory it looks quite a good prospect for currency. It is attractive and polishes up to a lovely sheen. The problem is rust: unless you keep it completely dry it is liable to corrode away.

“A self-debasing currency is clearly not a good idea,” says Sella.

We can rule out lead and copper on the same basis. Both are liable to corrosion. Societies have made both into money but the currencies did not last, literally.

So, what’s left?

Of the 118 elements we are now down to just eight contenders: platinum, palladium, rhodium, iridium, osmium and ruthenium, along with the old familiars, gold and silver.

These are known as the noble metals, “noble” because they stand apart, barely reacting with the other elements.

They are also all pretty rare, another important criterion for a currency.

Even if iron didn’t rust, it wouldn’t make a good basis for money because there’s just too much of it around. You would end up having to carry some very big coins about.

With all the noble metals except silver and gold, you have the opposite problem. They are so rare that you would have to cast some very tiny coins, which you might easily lose.

They are also very hard to extract. The melting point of platinum is 1,768C (3,214F).

That leaves just two elements – silver and gold.


Both are scarce but not impossibly rare. Both also have a relatively low melting point, and are therefore easy to turn into coins, ingots or jewellery.

Silver tarnishes – it reacts with minute amounts of sulfur in the air. That’s why we place particular value on gold.

It turns out then, that the reason gold is precious is precisely that it is so chemically uninteresting.

Gold’s relative inertness means you can create an elaborate golden jaguar and be confident that 1,000 years later it can be found in a museum display case in central London, still in pristine condition.

So what does this process of elemental elimination tell us about what makes a good currency?

First off, it doesn’t have to have any intrinsic value. A currency only has value because we, as a society, decide that it does.

As we’ve seen, it also needs to be stable, portable and non-toxic. And it needs to be fairly rare – you might be surprised just how little gold there is in the world.

If you were to collect together every earring, every gold sovereign, the tiny traces gold in every computer chip, every pre-Columbian statuette, every wedding ring and melt it down, it’s guesstimated that you’d be left with just one 20-metre cube, or thereabouts.

But scarcity and stability aren’t the whole story. Gold has one other quality that makes it the stand-out contender for currency in the periodic table. Gold is… golden.

All the other metals in the periodic table are silvery-colored except for copper – and as we’ve already seen, copper corrodes, turning green when exposed to moist air. That makes gold very distinctive.

“That’s the other secret of gold’s success as a currency,” says Sella. “Gold is unbelievably beautiful.”

But how come no-one actually uses gold as a currency any more?

At the beginning, people used what is now known as “commodity money”.

Commodity money consists of objects that have value in themselves as well as value in their use as money. These mediums of exchange include gold, silver, copper, salt, peppercorns, large stones (such as Rai stones), decorated belts, beads, shells, alcohol, cigarettes, livestock, candy, cocoa beans, cowries and barley.

Many different types of commodity money were used throughout the history, but eventually, most of the world turned to gold and silver which, at the time, looked like the perfect store of value and had all the qualities that money has to have. In around 680-650 BC, gold and silver was minted into coins in Lydia, making them exchangeable and convenient for use.

Eventually, people started getting worried about the possibility of their money being stolen, so banks were invented. As more and more people began to store their money in the banks, certificates of deposit were invented. A certificate of deposit was nothing more than a claim check, a piece of paper that you could redeem for gold or silver that was stored at the banks.

This system didn’t last for very long, though. The banks, eventually, started issuing more claim checks (currency) than they had gold and silver to back. This gave birth to Pseudo Money*, the kind of money that was only partially backed by gold and silver.

*Pseudo: false or counterfeit; fake.

In 1913, the government legalized this type of activity through passing The Federal Reserve Act, which specified that Feds could keep a 40% reserve of “real” money (in the form of gold and silver) for every single dollar that was issued to the public. This was the beginning of the end of the real money in the United States. At that point, it was only a matter of time until the Pseudo Money turned into Fiat Money, something that is used today not only in the United States, but in the entire world.*

*Fiat: in-convertible paper money made legal tender by a government decree.


If you look at the image above, in the upper left corner it says: “Redeemable In Gold On Demand At The United States Treasury, Or In Gold Or Lawful Money At Any Federal Reserve Bank”. It was a lie that the public at the time was not aware of. Neither the United States Treasury nor the Federal Reserve Bank (which is, by the way, is neither federal nor has reserves) had enough gold and silver to redeem every single paper dollar in circulation.

During the Great Depression of 1930s, there was a number of bank runs (a situation when a large number of people want to withdraw their money from banks at the same time). Eventually, more and more people started losing trust in paper money and wanted to redeem that money for gold and silver.


However, there was not enough of gold and silver at the bank volts for everyone so the government had to take some drastic measures to prevent the exposure of the truth. In 1933, Franklin Roosevelt, in direct violation of the US Constitution, passed a series of executive orders that would ban the ownership of golden coins and bullion in the United States. You can read the excerpt from the US Constitution below which is clearly stating that the only legal form of money in the United States can be gold and silver coin:

Article. I. – The Legislative Branch
Section 10 – Powers prohibited of States

No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

On August 15, 1971, Richard Nixon finally took the US Dollar off the gold standard, making it into a purely Fiat Currency. This was also the day when all currencies in the world became fiat currencies, meaning that none of the currencies today is backed up by anything other than your faith that it is worth something.

Nixon made his decision for the simple reason that the US was running out of the necessary gold to back all the dollars it had printed.

And here lies the problem with gold. Its supply bears no relation to the needs of the economy. The supply of gold depends on what can be mined.

In the 16th Century, the discovery of South America and its vast gold deposits led to an enormous fall in the value of gold – and therefore an enormous increase in the price of everything else.

Since then, the problem has typically been the opposite – the supply of gold has been too rigid. For example, many countries escaped the Great Depression in the 1930s by unhitching their currencies from the Gold Standard. Doing so freed them up to print more money and reflate their economies.

The demand for gold can vary wildly – and with a fixed supply, that can lead to equally wild swings in its price.

Most recently for example, the price has gone from $260 per troy ounce in 2001, to peak at $1,921.15 in September 2011, before falling back to $1,230 currently.

That is hardly the behavior of a stable store of value.

So, to paraphrase Churchill, out of all the elements, gold makes the worst possible currency.

Apart from all the others.