Ive never been able to understand the concept of gold. Why is it so valuable? How do countries know that the amount of gold being held by other countries? Who audits these gold reserves to make sure the gold isn’t fake? In the event of a major war would you trade food for gold? feel like people would trade goods for different goods in such a dramatic event. I have potatoes and trade them for fruit type stuff. Is gold the same scam as diamonds? Or how is gold any different than Bitcoin?
In: Economics
It’s thought that there are several properties gold had that made it useful as a store of value.
One is its rarity. Gold is a relatively rare substance, and it is hard to inject significantly more of it into the market at any given time. But it’s not so fantastically rare that people will hold onto it at all costs: there is enough of it around that people are comfortable trading it for other things. Gold strikes a delicate balance here: rare, but not *too* rare.
Another is its resistance to decay. Food rots, livestock dies, most metal rusts or at least tarnishes. Gold doesn’t do any of this, and so it doesn’t become worthless over time. Gold is also safe to handle. Uranium is rare, but you don’t want to carry it around in your pocket.
Gold had one more property in the past that no longer holds as strongly today: you couldn’t use it for very much, so people weren’t taking gold out of the market to do other things with it. You couldn’t make most tools with it, for example, because it’s too soft. For centuries its only use was ornamentation, and even in the form of jewelry it was still easy to trade. Nowadays this is no longer true, because its chemical properties are useful for making connectors in electronic parts. But this requires relatively little gold, so most of it is still used as a store of value, much like before.
To answer questions that others haven’t answered. No one audits other people’s gold reserves. It doesn’t really matter how much other countries have since money isn’t backed by gold anymore. The value of gold is currently determined by how much is for sale (not reserves) and how much people are trying to buy.
Perhaps gold futures might be determined by total reserves but that’s not as valuable as spot prices since it’s a given the volume of gold doesn’t change that much.
Big History linked the initial interest in gold to humanity’s survival instincts and attraction to shiny stuff that reminded them of water. Accurate? Dunno! But we like shiny stuff, so there’s that. [Gold – H2 | Big History Project – YouTube](https://www.youtube.com/watch?v=osVtNd5BMnQ)
Well initially it became popular because it was an easy to use soft metal. It’s still popular today for electronics and other industrial uses.
So it being rare and useful in life made it valuable in other aspects like diamonds, it was used as jewelry to show wealth since it is quite rare.
Since it’s a commodity one piece of gold is like every other piece of gold a global price could be set for it therefore it’s useful for trading as a form of money
Diamonds aren’t all that rare. Prices are kept artificially high by a handful of corporations (i.e. DeBeers). You can grow Diamonds in a lab, and generally speaking, they’re actually higher quality than natural diamonds. You cannot grow gold in a lab. It’s theoretically possible, but the pressure and energies would require contained fusion technologies we don’t have.
Very legit questions, let me get that one for you.
People always need to somehow store value for acquiring goods later. Suppose I’m a fisherman. I go get some fish to feed my family, I trade some with potatos and onions and whatever. At some point though, I also need to buy a Lambo (… I mean, why use furniture as the example? :D). I can’t store a bazillion fish to trade for the lambo, instead I have to somehow trade today’s fish for **something** that I can reasonably expect will worth roughly the same 10 years later.
How do we determine that **something** ? Well, history has done it for us, and gold has won that race (for the reasons u/luminous_Lead roughly mentioned).
That said, there is no metaphysical meaning to gold. It can be anything that **you** believe will act as a reliable store of purchasing power.
>How do countries know that the amount of gold being held by other countries?
It doesn’t really matter in normal circumstances.
>Who audits these gold reserves to make sure the gold isn’t fake?
Nobody.
>In the event of a major war would you trade food for gold?
People have traded valuables for food at those times, for the obvious reason that you need to be alive before you can enjoy wealth,
>Or how is gold any different than Bitcoin?
Gold obviously has a vastly superior history of performance that makes people trust it more as a long term asset. But in terms of “nature”, gold, seashells, player cards, art, antiques and btc are the same; commodities that can be used to store value. It’s the perception of the people that makes them “stick” or not.
Rare, shiny, doesn’t rust
It’s easy to tell how pure gold is- you put it over a flame. Pure metals how very high melting points and the purer they are, the higher the melting point. Pure gold melts at over 1000C, but gold mixed with silver and copper, although it looks like gold, melts at much lower temperatures.
It’s also seriously dense, so weighing it is a good way of checking if it’s the real deal.
Ok, so I wrote a really long and in-depth response to answer all the questions, but Reddit didn’t like it for some reason, so I’ll write a shorter and less-involved one.
To answer the most important (imo) question specifically:
> In the event of a major war would you trade food for gold
This goes back to the root of commerce and why commerce exists at all. Once upon a time, society was agricultural. Everyone was a farmer and grew crops. Then technology got better and suddenly everyone grew more crops. The problem is, now people had too many crops. Crops are perishable, so what do you do when you have excess crops? As it turned out, when you have too much rice, someone else has not enough rice but has too many eggs. And someone else has too many tomatoes. And so on. And so, the person with too much rice traded rice for eggs or whatever.
The thing is, then what happened is technology got EVEN BETTER and suddenly everyone had too much rice AND eggs AND tomatoes. The thing about rice and eggs and tomatoes is that they’re great for a period of time (refrigeration hadn’t been invented yet) and then they go rotten. So you have a great poke bowl for about 2 weeks and then you starve to death. Clearly this is not an ideal situation. So people looked to a way to trade not only across resources but also across time: I have too much rice today, I want to give up some of my rice today for a guarantee of having rice tomorrow. And that’s how money was invented. “Hard” (tangible, valuable) money is a mechanism whereby I can forfeit a resource today to gain another resource tomorrow.
In a time of poverty or strife or war, you can be in plenty or in poverty. Those in poverty want to acquire the goods they need to live, while those in plenty have the goods they need and want to acquire these IOUs to remain in plenty tomorrow. So, the former group will trade gold for food, the latter group will trade food for gold. That’s basically how it works. As for the question of “why gold in particular?”, that’s a question that will be lost to the Reddit gods who refused to allow me to write the longer version of this answer. Others have written about it in their answers, though, so check those.
To address the scam part: substitutes matter. Diamonds are (sort of) a scam because the supply is artificially restricted and we can outright manufacture them. Bitcoin is similar: there’s a limit to the number of bitcoins, but there is no limit to the number of bitcoin alternatives (Ethereum being the most famous alternate). Gold cannot be simply manufactured or coded up. It needs to be mined or pulled up from some ancient wreck or something: it’s not easy to simply get a lot more of it. This may change some day: much has been made of the “multi-trillion dollar” asteroids in space that are full of gold (which would be worth a lot less if we actually managed to economically mine them).
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