What Is Gold?

Few things have fascinated mankind throughout history as much as gold, it has captivated the minds of men. From its early discovery to its usage as currency and jewelry, gold has always remained a very important precious metal. Before we look at the history of gold and how it has been used, let us first look at what exactly is gold?

Where Is Gold Found?

Gold is the 79th element in the periodic table of elements and this means that it contains 79 protons in its nucleus and the same number of electrons in its energy shells. Gold does not naturally occur on earth because it is a very heavy element. So if gold does not occur on earth, how come there are tons of deposits on earth? Well, like all heavy elements gold came on earth from space.

How Gold Is Created

Gold, forms at the heart of dying stars, sounds surreal but this is true. When a star starts to run out of its fuel, it starts converting the available fuel to heavier elements. As the weight of the higher elements increases, the layers of star begin to collapse upon itself and this process continues till the star reduces in its size, the core of the star turns into iron under extreme heat and pressure and as the pressure keeps on rising due to continuous collapse of outer layers, the star depending on its size and other factors, sometimes explodes with tremendous energy and expels all the matter into space. This event is known as a nova.

Nova are classified into different categories based on the size of stars. A super nova occurs when a giant star explodes. Recently, scientists have come across an event known as kilonova, where two giant stars, possibly existing as a binary system explode together. The extreme conditions of the kilonova create heavier elements like gold.

The energy produced in a supernova is not enough to make gold, it requires a kilonova or above to produce elements as heavy as gold. Billions of years ago when the universe was in its early stage of formation, gold was created in this manner and expelled into space. The matter that created our solar system and earth, must have contained expelled gold which then would have formed a part of earth during its formation.

In addition to this, scientists believe that the earth was bombarded with asteroids in its early formation, asteroids that contained heavy elements including gold. Over time these asteroids, became a part of the crust of the earth and a major proportion of gold, that was a part of earths formation, sunk down towards the core of the earth along with other heavier elements due to its density.

The deposits of gold we come across, are only a small portion of the total quantity of gold present on earth. These deposits are created by movements of earth`s crust or magma as it travels beneath the surface, carrying elements such as gold with it.

The fact that gold does not naturally occur on earth makes it rare and its value is driven from its rarity. Although there are other elements that are rarer than gold but gold has got some unique properties that make it valuable.

How Gold Is Mined

Firstly, it can be easily mined. Gold is found in a semi solid state which means that the process of purification is not as complex as compared to some other metals. Copper for example is more abundant that gold but its purification process is more expensive. Secondly, gold has diverse uses, it can be used in electrical appliances for it s excellent heat and electricity conducting property, similarly gold has always been used for ornamental jewelry, as a symbol of status. Most importantly, gold was in ancient times used as a currency. Gold, silver, copper and bronze were used for coinage and over time as the financial system developed, gold took center stage. Before currencies became fiat, they used to be backed by the amount of gold in the reserves of any country.

How Gold Is Used As Money Today

In the 70’s when President Nixon ended the gold backed dollar and introduced dollar as the first fiat currency, other countries soon followed suit and delinked their currencies with gold. Nevertheless, since then countries have kept reserves of gold and in the last few years there has been a change in trend where countries like Russia and China have started multiplying their reserves of gold, as a means to secure their economies from external shocks created by any future global financial crisis. Is the world going back to the gold backed currency model? Who knows, but this shows that gold remains valuable.

In addition to this, gold is commonly used to hedge risk. Gold futures and options are commonly used be investors to hedge risk and using gold derivatives overcomes the lack of return problem. When you compare gold with say the shares of any company, you can see a few differences. The main difference being the lack of periodic returns. Gold requires investment to purchase it and after this investment it does not give any return, the only return gold can give is in the form of capital gain at the time of sale. Whereas stocks, bonds and other investment options carry period returns and thus are more attractive to investors. Gold derivatives overcome this problem by allowing investors to make profit on the movement of the value of gold through gold futures and options. Today, many investors and retirees are investing their hard earned 401ks and retirement accounts into dependable gold IRA accounts.

Gold is therefore, not just an element it is also a currency, a measure of value, a unit of account, a way to exhibit affluence, it has attracted the fascination of men ever since we first saw it. Alchemists have tried turning copper into gold, literally or metaphorically or perhaps both. It goes to show that gold occupies a special place in the collective history of humanity.