Why do we use Gold as currency when it just sits in vaults?

QUESTION: Why is gold as valuable as it is? Why isn't sodium or tin as valuable?

ANSWER: Gold is one of three precious metals, the others being Platinum and to a lesser extent silver. The main reason for their value is that they are rare. You can put all the gold ever found in a cube less than 150 feet. Not very big by today's standards. In a good gold mine, you have to move and refine ten tons of dirt or rock for each ounce of gold recovered. There are not many good gold mines in the world either. The second property of a precious metal is that it has to be impervious to the elements. In other words it cannot rust, corrode, or be degradable by other elements. Gold is so inert that it is sometimes found in nature in the natural metal state in the form of nuggets. This allowed people in ancient times to take the natural nuggets and pound them together to form metal objects. Gold does not oxidize or corrode, so it’s shape will remain a thousand years from now if you do not ware it away.

Other properties making it valuable is malleability. You can literally beat on it and it tends not to crack. In fact gold can be hammered out so thin that light will pass through it. It has been hammered out thinner than tinfoil and applied to objects as "Gold Foil". Gold foil stays a highly reflective beautiful yellow color, lasting forever. There never has been a paint that will last and protect like gold foil. Gold was used to cover idols and temples raising its status even further.

Historically, only the affluent, churches, and governments could afford to own gold. It’s value was based on work. People worked to earn gold (or silver), virtually trading part of their lives for gold and its purchasing power. It quickly became impractical to carry large piles of gold, so governments took most of the gold and gave people promissory notes (money) representing a given weight in gold. Before the early 30’s you could take your money to the bank and get the same amount of dollars in gold coins.

Let’s talk about that beautiful yellow color. Gold just looks good and glorifies human skin colors. A fine craftsperson can form gold into small sculptures that can be worn, admired, and enjoyed. It can be fashioned into small sculptures that hold precious stones - jewelry. Because of its permanence, gold can be repaired and admired for many lifetimes. Thus you have precious jewelry, as opposed to costume jewelry, which is intended to wear with just one "costume" and then be discarded.

Today there are other new uses for gold. Gold transfers electricity with less resistance than any other metal on this earth. Extremely high-end electronics and computer components use gold wiring instead of copper for their circuitry. Gold does not corrode and it is used to plate or make fine electrical contacts. It is very reflective and is used in equipment that needs to not oxidize like laser chambers. Very thin layers cut down on light without changing its properties. Astronauts, pilots and high-end sunglasses are coated with gold to cut down on the intensity of the sun's rays. Extremely fine fabrics have gold threads because gold does not dull with time.

The value of gold will never go down. At a certain level of value, mines will shut down operations because production costs are higher than they can sell it for. Today, there are more uses for gold being found daily. The question is, “will we have enough gold to fulfill the demand in the future?” There has never been enough gold in the past to fulfill everyone’s desire. And there will not be enough gold to fill future demands. Gold is beautiful and it has very valuable rare properties which makes it so valuable.

(1) We don't use gold as currency

(2) Using something useful as currency is a very bad idea. It "productive" uses would interfere with its use as "money" because fluctuations in the two demands would interact, making the value of the money highly unstable. And then there is the problem of standardization and validating that a particular sample meets the standard.

http://en.wikipedia.org/wiki/Commodity_money

(3) You also want something that can be stored. Fuel degrades over time. The Mesopotamians used barley but that didn't work very well and so was replaced.

http://en.wikipedia.org/wiki/History_of_money#Comm...

(4) You want to be able to increase the supply of money with the economy. Since the amount of gold found is not increasing much every year, it makes a terrible base for money. That's the main reason we don't use it as money any more.

(5) There is an active world market in gold. The price of gold is decided by people who want to buy it and people who want to sell it, just like other commodities.

(6) Gold is desired and much rarer than titanium so it costs more, just like diamonds cost more than water.

http://en.wikipedia.org/wiki/Paradox_of_value

On the other hand, aluminum used to cost more than gold and now aluminum is cheap.

http://en.wikipedia.org/wiki/Aluminium#Production_...

There is a major flaw with your question:

We DO NOT use gold as currency. There is not a single country in the world (as far as I'm aware) that still issues gold coins.

Gold is valuable not because it is useful in industry, but because it is rare. This story may be apocryphal, but I have heard that all of the gold mined in human history could fit in a space the size of the Washington Monument. Whether that's true or not, the fact remains that there isn't much gold in this world. And by the laws of supply and demand, if a commodity is rare and if people want it, it will be expensive.

Gold as a commodity is traded and has a relative value too. Everyone recognizes gold as a valuable thing and even in times of anarchy gold will find a value.

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