Guide to gold

Guide to gold

Gold has been used to store wealth for more than 3,000 years. Why? It’s rare, it’s distinctive, and it’s nearly impossible to destroy. Whether through the “gold standard”, the “golden age” or “gold medals”, no other metal throughout human history has been more closely linked to wealth, trade and success. 

Gold does have practical uses, but the security of investing, storing and trading refined gold coins and bullion is the real reason that a metal with apparently few uses still attracts premium prices, and never more so than as a secure asset in times of uncertainty. 

But what is gold? What are gold’s chemical and physical properties? What is it used for? Why is gold so valuable and how can it be bought as an investment?

The key chemical properties of gold

Gold is a chemical element and precious metal remarkable for its rarity, density, softness and excellent electrical conductivity. It is one of the least reactive elements on earth, resistant to most acids, though it does dissolve in the mixture of nitric and hydrochloric acids called “aqua regia”. 

Gold is the most malleable of all metals and can be drawn into a wire of single-atom width. The metal is rare, difficult to refine, impossible to manufacture (despite the attempts of alchemists down the ages) and – despite having few practical uses - has been considered to be highly valuable across cultures and throughout history.

What is gold used for?

Gold has very few uses within modern industrial processes, with the exception of dentistry (where unreactive gold alloys are used in crowns and fillings), gold plating (thanks to the metal’s malleability) and the manufacture of some specific electronics. However, gold has been used across cultures in the creation of jewelry and decorative items for thousands of years. Historically, gold has also been used as currency, with gold coins first struck in Lydia, Asia Minor in 600BC. 

Subsequently, the promise of the riches brought by new supplies of gold fuelled the Age of Exploration, particularly in Central and South America, as discovery and possession of gold signified two simple things: wealth and power. Gold coins became the bedrock of worldwide monetary and trading systems. Modern gold coins and bullion bars are used less dynamically, and much of the world’s gold is now kept in vaults, whether by governments or private investors, to securely store wealth and hedge against other investments. The most accurate 21st Century answer to “what is gold used for” is not for currency or even jewelry, it’s for investment. 

Where can gold be found?

Gold can be found worldwide, and prehistoric artefacts have been found from Bulgaria to Egypt. South Africa was the centre of gold exploration and mining in the 19th and 20th centuries: Johannesburg was founded as a gold boom town, and the Boer War was fought partly over mining rights.
In 2007, China overtook South Africa as the world’s largest gold producer, which it remains today. Australia and Russia are currently estimated to be sitting on the world’s largest gold reserves.

Why is gold so valuable?

Gold is rare, durable, and – when crafted – considered beautiful. But the reason it maintains such high value is largely abstract and psychological. Also, the metal has across millennia become so intrinsically linked with notions of trade and wealth that the imagined value of gold has become real.

That gold has consistently remained so highly prized makes it an excellent form of investment insurance, as gold has generally retained its value when other investment options have decreased (and broadly speaking, when stocks and bonds are falling, the price of gold often rises). Scarcity also plays a part: there is a finite amount of gold available in the world and gold mining Is difficult and expensive. Gold can also be stored securely in vaults and easily traded online, which – if anything – has increased its attraction as an investment in the 21st century.

How can gold be used as an investment?

Buying gold as part of a wider portfolio can offer a balance to other investments, or anchor a more risk-averse investment strategy.

Find out more about how you can buy gold bullion cheaply, easily and safely online through BullionVault.

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