Why do we care about gold?
There are 118 elements on the periodic table. We breathe some. We use some for energy. We’re made of others.
Yet we obsess over Au, good old # 79, silver’s big brother: we obsess over GOLD.
Why?
There are some very objective reasons, but the most powerful is is the most subjective.
Gold is a social construct.
We, as a society, believe it has value. Therefore it does.
Bitcoin is just an artificially limited supply of something on the blockchain, yet we agree it has value. (At least some of us do.)
It’s a social construct too.
And often called "digital gold."
Societies 8,000 years ago, ancient Egyptians, and your mom all believe gold has value. Societies wiped out by war ran off with their gold because they knew that while their cultural items might be worthless to others, gold would be desired.
It's a deep part of human psychology.
But it had to start somewhere. How did gold get into our brains?
The most obvious reason is simple: it’s beautiful.
We’re all morons on some level.
We like pretty people and shiny rocks.
But did you know gold STAYS shiny? Silver tarnishes, changes color over time (on the surface). PURE gold is wonderfully inert. Your mother’s father’s grandmother’s great aunt’s gold jewelry still looks as good as the day it was made.
That durability is a hugely desirable trait.
Gold is also extremely malleable. This composability allows it to be shaped and used with relative ease.
Shine + durability + malleability = jewelers’ dream
Because of this combo gold became a flex early in human history, and has stayed a flex for millennia.
How malleable is gold?
A single ounce of gold can be beaten into a sheet 0.000018 cm thick, and would cover 9m squared.
Visualized a different and perhaps more impressive way: a single ounce can be stretched into a 5 micron wire that would go for 50 MILES.
Gold is also highly conductive, making it a useful component in electrical circuits.
Imagine Bitcoin, digital gold, being mined with circuits made from physical gold.
Fun little mental image, that.
Why is the atomic # 79? Because it has 79 protons in the nucleus, paired with 79 orbiting electrons.
Why is the atomic symbol Au? It originates from the Latin word, Aurum, meaning “shining dawn.”
We often like gold as an investment because it has limited supply and is hard to find. This scarcity and high extraction cost help deliver its appeal.
(Once again, sounds a lot like BTC.)
Economically speaking, it used to be of huge importance. As recently as 50 odd years ago the world was on (a form of) the gold standard. This meant that all fiat currency was backed by a pre-set amount of gold.
At any time you could exchange fiat for a set amount of gold.
Since multiple foreign fiat currencies were pegged to gold, that meant that exchange rates were pegged to gold.
Dollars into gold. Gold into Pence. Easy. (Breezy.)
Beautiful.
But unfortunately sometimes governments want to spend more money than they actually have. The gold standard doesn’t allow this as all new money has to be backed by more gold.
What... to... do?
You change the rules.
The US had been on the gold standard since 1879. But during the Great Depression in 1933, FDR shook things up.
He made everyone sell back their gold to the gov’t for $20.67 an an ounce.
The US collected $770m of gold from its citizens.
Once they had the gold, Uncle Sam said “nah” to $20.67 an ounce, and changed the price. By governmental degree gold was suddenly $35 an ounce.
The money supply had just been inflated by 69%. (nice)
President Herbert Hoover did a lot wrong during his presidency, but he did famously say to FDR: “We have gold because we cannot trust governments.”
I dig the sentiment.
We tried to reset to a gold standard after WWII. World currencies got pegged to the dollar, and the dollar was pegged to gold at $35/ounce.
But the world ended up with more dollars than gold, leaving the US open to a gold run.
That didn’t sit well.
Inflation was creeping up and the US was unable to meet its obligations for gold redemptions under this peg.
Fixing the issue quite bluntly, on August 15, 1971, US president Richard Nixon formally pulled us from the gold standard for the last time.
England was the first country to implement a gold standard in 1717.
At one point much of the world had followed suit.
Today, nobody does.
Including England.
Now to be fair, I don’t want to pitch the ditching of the gold standard as strictly a bad thing.
The gold standard doesn’t allow the money supply to grow as fast at it might need to. If economic growth is more rapid than how fast we mine gold, it will cause imbalances.
And if the world’s currencies are all linked via gold, contagion is more likely, and more rapid.
And post WWI smaller countries hoarded dollars and pounds, which meant they gave gold for those currencies, concentrating the gold stashes into a few large countries. Also an issue.
Lastly, sometimes governments need flexibility. The First World War caused a lot of government debt, shifting alliances, and poor finances. Having more control over your country’s currency is helpful when you absolutely NEED flexibility.
Leaving the gold standard can make sense.
Post gold, fiat is what we call money. It's a word derived from the Latin word “fieri”, meaning an arbitrary act or decree.
Government issued currency is now exactly that, an arbitrary decree.
Home Depot accepts my dollar because the government says so.
We’ve been increasingly irresponsible with our money supply ever since leaving gold.
Which is why, despite being off the gold standard, many sane people still hold gold as a store of value.
In fact, they hold it BECAUSE we’re off the gold standard. You can't print more gold.
How scarce is gold?
All of the gold ever mined equals about 187 thousand tons. That may sound like a lot, but gold is so dense it would fit into a cube just 21 meters on each side. Or a tennis court with the gold stacked almost 10m high.
That’s it. That’s all of it.
So gold is hard to get, scarce, limited supply, shiny, durable, malleable, useful.
Even without a gold standard, we love it.
We probably always will.
Cause we're morons. And it's shiny.
Check out @degenpoet's latest masterwork below! It's appropriately dubbed "Golden Goose."
exchange.art/single/7WjCTr4s7R5f2aLpXcdBp1nFQX7iSpktZPmWLxszYYkM