I hear some economics arguing that currency should be pegged to gold as a way of ensuring that its value isn’t arbitrary / volatile but I don’t understand how this would solve the problem. I understand that gold is a scarce resource that is difficult to mine but is it this alone that gives it intrinsic value ?
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first of all, it’s so called “noble” element. it’s non reactive to most things (apart from one solvent), it doesn’t rust or decay in any way. another thing is scarcity – it’s hard to find/mine/extract. also, since it’s relatively soft it’s been used for decoration and jewelery since man discovered secrets of metalurgy.
to answer your question directly – mostly because of scarcity. big gold suppliers will withold sales to keep the price up, when too much gets dumped on the market.
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