9 Reasons Why Gold is Valuable

1. Gold is scarce

Gold is scarce because its natural supply is limited, measurable, and slow to increase relative to demand. In the context of gold, scarcity means the metal exists in small quantities within the Earth’s crust and cannot be created or expanded on demand. Gold is rare enough to be considered precious, yet sufficiently available to function historically as a medium of exchange.

This scarcity exists because gold occurs at extremely low concentrations in the Earth’s crust, which forces miners to process large volumes of rock to extract small amounts of usable metal. New gold deposits are increasingly difficult to discover, and bringing a mine into production requires years of exploration, regulatory approval, and capital investment. Gold supply grows slowly even when prices rise as a result.

Only around 216,000 tonnes of gold have ever been mined globally, which equals roughly 27 grams per person based on the current world population. Annual mine production adds only 1-2% to this total, which shows how slowly gold supply grows compared with ongoing global demand from investors, central banks, and industry.

Because gold supply cannot expand quickly, rising demand places direct upward pressure on price. This constrained availability reduces dilution risk and supports gold’s ability to retain value over long periods, reinforcing its role as a scarce and valuable asset.

2. Gold holds aesthetic value

Gold holds aesthetic value because it has visual qualities that make it desirable for display, adornment, and craftsmanship. In the context of gold, aesthetic value refers to its natural color, luster, and permanence, which make it visually appealing without requiring treatment or enhancement.

Gold has this property because it does not corrode, tarnish, or fade over time. Its warm yellow color is naturally occurring, unlike many metals that require plating or polishing to maintain appearance. Gold is also highly malleable, which allows artisans to shape it into intricate designs without breaking, making it ideal for jewelry, art, and ceremonial objects.

Around 50% of annual gold demand, roughly 2,000 to 2,200 tonnes per year, comes from the jewelry sector. This demand is driven primarily by consumer preference for gold’s appearance, particularly in markets such as India and China, where gold jewelry plays a central cultural role.

This sustained demand for gold based on appearance creates a constant source of value that is independent of financial markets. Because aesthetic demand persists across generations and economic cycles, it provides a stable foundation for gold prices and reinforces gold’s long-term value.

3. Gold offers practical applications

Gold offers practical applications because it has physical and chemical properties that make it useful in both industrial and everyday contexts. In the context of gold, practical value refers to its ability to perform specific functions reliably, rather than serving only decorative or investment purposes.

Gold has this property because it conducts electricity efficiently and resists corrosion better than most metals. It does not rust, oxidize, or degrade when exposed to air, moisture, or chemicals. Gold is also easy to shape, which allows it to be used in coins, bullion, and jewelry while still meeting precise technical requirements in industrial manufacturing.

Around 7-8% of annual gold demand, roughly 300 to 350 tonnes per year, comes from industrial and technological uses. Gold is used in electronics such as connectors, memory chips, switches, circuit boards, and connectors to ensure stable data processing. It is also used in dentistry for fillings, crowns, bridges, and orthodontic appliances, in aerospace components where reliability is critical, in certain medical treatments including compounds for rheumatoid arthritis, and in solar panels to improve energy efficiency.

Because these applications depend on gold’s unique properties and cannot be easily replaced by cheaper materials without performance loss, they create steady, non-speculative demand. This functional demand supports gold’s market value by tying part of its price to real-world utility rather than investment sentiment alone.

4. Gold represents wealth

Gold represents wealth because it has long been used as a durable store of purchasing power. It is widely recognised as a symbol of economic value that can be held, displayed, and transferred without relying on a financial system.

Gold has this property because it is scarce, durable, and universally accepted across cultures. Unlike paper money or digital balances, gold exists in physical form and does not depend on an issuer’s credibility. Its resistance to decay allows wealth stored in gold to be preserved and passed down across generations, reinforcing its role as a symbol of lasting value.

Individuals and institutions around the world hold gold in the form of bars, coins, and jewellery specifically to store wealth. This form of ownership reflects gold’s role at the personal and societal level, where it is used to preserve value, signal wealth, and transfer purchasing power over long periods.

This widespread use of gold for wealth storage strengthens its value because demand is driven by long-term preservation rather than short-term consumption. When people choose gold to store or display wealth, they create stable, enduring demand that supports gold prices over time.

5. Gold has been used as a currency standard

Gold has been used as a currency standard because it served as a direct anchor for money value over long periods of economic history. In the context of gold, acting as a currency standard means national currencies were defined by a fixed quantity of gold, and paper money could be converted into gold at a predetermined rate.

Gold fulfilled this role because it is scarce, durable, and divisible, and it maintains consistent quality across time and location. These properties made gold suitable for backing currency systems, as governments could not easily expand the money supply without increasing gold reserves. This imposed discipline on monetary issuance and limited inflation caused by excess currency creation.

At its peak in the mid-20th century, the global monetary system operated under the gold standard or gold-linked systems. Under the Bretton Woods system, the US dollar was fixed at USD 35 per troy ounce of gold, and many major currencies were indirectly tied to gold through the dollar. Central banks accumulated large gold reserves to maintain these fixed exchange rates.

This historical role continues to support gold’s value today. Because gold once defined money itself, it remains closely associated with trust, stability, and monetary credibility. When confidence in fiat currencies weakens, demand for gold often increases, reinforcing its value as a benchmark for currency strength.

6. Gold functions as a monetary asset

Gold functions as a monetary asset because it is widely held, recognized, and traded as a reserve of value within the global financial system. In the context of gold, functioning as a monetary asset means it is used by central banks and institutions alongside currencies to support reserves, liquidity, and financial stability.

Gold has this role because it carries no credit risk and does not depend on the financial health of an issuing authority. Unlike fiat currencies or government bonds, gold is not a liability on any balance sheet. It can be held outright, settled internationally, and used as a reserve asset without counterparty exposure.

Central banks collectively hold more than 35,000 tonnes of gold, accounting for roughly 16% of all gold ever mined. Many countries actively adjust their gold reserves as part of long-term reserve management strategies, reflecting gold’s continued monetary relevance.

This institutional demand reinforces gold’s value by anchoring part of its price to sovereign and monetary use rather than private investment alone. When central banks increase gold allocations, they remove supply from the open market, which supports prices and strengthens gold’s role as a monetary asset.

7. Gold preserves value against inflation

Gold preserves value against inflation because its supply does not expand in line with increases in the money supply. In the context of gold, preserving value against inflation means the metal maintains purchasing power when the value of fiat currencies declines due to rising prices.

Gold has this property because it cannot be created by central banks or governments. While fiat money supply can increase rapidly through monetary policy, gold supply grows slowly and predictably through mining. This limits dilution and allows gold prices to adjust upward as currency purchasing power falls.

Between 1971 and 1980, following the end of the gold standard, US consumer inflation rose sharply, and the gold price increased from around USD 35 per ounce to over USD 800 per ounce. This period illustrates how gold prices can rise when inflation accelerates and currency value weakens.

This relationship supports gold’s value by linking its price to long-term monetary conditions rather than short-term price stability. When inflation erodes currency purchasing power, investors and institutions turn to gold, increasing demand and reinforcing its role as a store of value.

8. Gold acts as a safe-haven asset

Gold acts as a safe-haven asset because it tends to retain value during periods of financial stress and economic uncertainty. In the context of gold, being a safe-haven asset means it is sought after when investors reduce exposure to riskier assets such as equities or corporate debt.

Gold has this role because it is highly liquid, globally recognized, and free from default risk. It is not tied to the performance of any single economy or issuer, which allows it to remain trusted when confidence in financial systems weakens. During crises, investors often shift capital into gold to protect wealth rather than pursue returns.

During the 2008 global financial crisis, the gold price rose from around USD 650 per ounce in 2007 to over USD 1,000 per ounce by early 2009, while global equity markets experienced significant losses. This movement reflects gold’s tendency to attract demand during periods of market stress.

This behavior supports gold’s value by creating counter-cyclical demand. When risk sentiment deteriorates and capital exits risk assets, increased demand for gold helps stabilize or raise its price, reinforcing its role as a safe-haven asset.

9. Gold can hedge portfolio risk

Gold can hedge portfolio risk because its price movements differ from those of traditional financial assets. In the context of gold, hedging portfolio risk means gold can reduce overall volatility and potential drawdowns when held alongside assets such as equities and bonds.

Gold has this property because it responds to different drivers than most risk assets. While equities are influenced by corporate earnings and economic growth, and bonds by interest rates and credit conditions, gold is driven primarily by monetary conditions, currency strength, and risk sentiment. This difference in behavior allows gold to perform independently during certain market environments.

Over long periods, gold has shown a low or negative correlation with major equity markets during periods of stress. For example, during major equity drawdowns, portfolio allocations of 5 to 10 percent in gold have historically reduced overall portfolio volatility compared with equity-only portfolios.

This diversification effect supports gold’s value by embedding it into long-term investment strategies rather than speculative positioning alone. As investors use gold to manage risk and stabilize portfolios, consistent allocation demand helps sustain gold prices across market cycles.

Gold value FAQs

Does gold have intrinsic value?

Yes, gold has intrinsic value. That intrinsic value is assigned rather than inherent, meaning gold is valuable because people collectively agree it represents preserved purchasing power.

This collective acceptance exists because gold is scarce and has physical properties that support long-term use. Gold is difficult to extract, limited in supply, resistant to corrosion, and easy to store and divide. These characteristics made gold suitable for trade, jewelry, and monetary systems, which reinforced its value over time.

Because scarcity limits dilution and gold’s physical properties allow it to endure without degradation, societies continue to recognize gold as a store of value even though it does not generate income or cash flow.

What determines the value of gold?

The value of gold is determined by these 6 factors:

1. Demand

Gold demand comes from investors, central banks, jewelry consumers, and industry. When demand rises faster than available supply, gold prices increase.

2. Supply

Gold supply is limited by mining output and recycling. Annual production grows slowly, which restricts how quickly new supply can enter the market and supports price stability over time.

3. Central banks and reserves

Central banks influence gold value through reserve accumulation or sales. When central banks increase gold holdings, they reduce market supply and signal long-term confidence in gold as a monetary asset.

4. Currency and inflation

Gold is priced globally in US dollars, so currency movements matter. A weaker dollar or rising inflation increases gold’s appeal as a store of value, which pushes prices higher.

5. Market sentiment

Investor perception during periods of uncertainty, financial stress, or geopolitical risk often drives capital into gold. This safe-haven demand can move prices independently of physical supply and demand.

6. Real economy uses

Gold’s use in jewelry, electronics, medicine, and energy technology creates baseline demand that anchors part of its value to practical utility rather than investment flows alone.

These factors explain why gold prices respond to economic data, policy shifts, and changes in risk sentiment. For traders, understanding how gold prices move is a practical foundation for deciding when and how to trade gold across different market conditions.

How has gold's value changed over time?

Gold’s value has changed over time through a series of distinct monetary and market phases, each reflecting shifts in how gold is priced and used:

Before 1971

Gold prices were largely fixed under gold-backed monetary systems. The US dollar, for example, was pegged at USD 35 per ounce, which kept gold value stable but disconnected from market forces.

1970s inflation era

Gold began trading freely after the end of the gold standard in 1971. High inflation and currency devaluation pushed gold prices sharply higher, establishing its role as an inflation hedge.

1980s to early 2000s

Gold prices moved sideways or declined in real terms as inflation eased, interest rates remained high, and confidence in fiat currencies strengthened.

Post-2008 financial crisis

Gold prices rose strongly as monetary stimulus, low interest rates, and financial instability increased demand for safe-haven assets, with prices moving above USD 1,000 per ounce.

Monetary normalization between 2013 and 2019

As central banks signaled tighter policy and economic recovery, gold prices corrected and traded in a broad range. This period showed that gold can underperform when real interest rates rise and risk appetite improves.

2020s period of uncertainty

Gold reached new highs amid pandemic disruptions, inflation concerns, geopolitical tension, and increased central bank buying, reinforcing its role as a monetary and risk-hedging asset.

These long-term changes are best understood by observing how gold prices react to real-world events in real time. Looking at live gold prices alongside historical charts helps show how gold responds to inflation data, central bank decisions, geopolitical developments, and shifts in market sentiment as they happen.

How can I profit from gold's value?

You can profit from gold’s value by trading its price movements rather than owning physical gold, using instruments such as gold CFDs that track the underlying gold price. This instrument allows traders to speculate on both rising and falling prices without taking delivery of bullion, while reacting to short-term market drivers.

With gold CFDs, traders can open long positions if they expect prices to rise or short positions if they expect prices to fall. They can also apply position sizing and risk controls, such as stop-loss and take-profit orders, to manage exposure in volatile markets.

Why is gold more valuable than silver?

Gold is more valuable than silver for 6 reasons:

1. Gold is far rarer in nature than silver.

2. Gold exists in much smaller total quantities than silver.

3. Gold concentrates more value into less physical volume than silver.

4. Gold has a longer and stronger reputation as a monetary asset.

5. Gold prices are less volatile than silver prices.

6. Gold functions more effectively as an inflation hedge and portfolio diversifier.