How Stuff Works: How gold works
Gasoline is worth just a few pennies per ounce. So is aluminum. But gold is worth nearly $1,000 an ounce today.
It seems like we hear about gold just about every day. Either we hear about it on the news as the price of gold heads toward $1,000 per ounce. Or there's the cash-for-gold ads on TV begging you to send in your old gold in return for a check. Or you walk by a big display of gold in a jewelry store window at the mall.
So what is this stuff called gold, and why is it so popular?
Like iron or aluminum, gold is a metal. But gold is a lot heavier and softer than most metals we deal with normally. Gold is nearly three times heavier than iron - an iron cannon ball would easily float in a pool of molten gold. Gold is also a lot softer than most household metals. You can leave teeth marks in pure gold if you bite it. But even though it is soft, gold does not react with oxygen. That's why gold never rusts like iron or gets dull like silver.
You could once find chunks of gold in rivers and streams, and people could pan the gold out like they did in the gold rushes of the 1800s. This was gold that had eroded out of gold deposits in the earth and collected in stream beds. Nearly all of that easy gold has been harvested, so gold today comes from mines. What miners look for are veins of gold ore, where the gold mixes in with something like quartz. The ore is crushed and the gold is extracted using one of several different techniques.
People have been finding, extracting and cherishing gold for thousands of years. Even so, all the gold that people have ever found would fit in a cube that is about 60 feet on each side. In other words, if you took all of the gold in the entire world and stacked it as gold bars, it would all fit into a dozen typical American homes. This rarity, combined with the fact that gold is so popular, makes gold expensive. Gasoline is worth just a few pennies per ounce. So is aluminum. But gold is worth nearly $1,000 an ounce today.
That high price has made gold a good investment vehicle. People have been making gold coins for millennia. Today, many nations and individuals still buy and hold gold as a tangible way of storing value and as a hedge against inflation. Because gold is rare and popular, its value keeps growing. You could buy an ounce of gold in 1975 for $140. The price today reflects the effect of inflation. It is not a perfect correlation because there are spikes and valleys in the price, but it works pretty well over the long haul.
The popularity of gold comes because gold is both beautiful and useful. Gold is popular in jewelry because of its beauty. And gold is popular in coins both for its beauty and value. There are few things worth thousands of dollars that will fit in your pocket and will still be worth that much in a hundred years. Gold is also popular in electronics because gold conducts electricity so well. Every home computer has a little gold in it for that reason.
Pure gold is called 24 carat gold, but you rarely see pure gold when buying jewelry. Instead you typically see something like 12 or 18 carat gold. 18 carat gold contains 75 percent pure gold, while 12 carat gold is half gold. The other half is made of less expensive metals like copper. The advantage, besides making the jewelry less expensive, is that it makes the gold stronger. A pure gold chain, for example, would break or dent very easily. A 14 carat gold chain is much stronger.
Chances are that you will hear a cash-for-gold kind of ad today on the TV or radio, or see one on the internet or in the newspaper. How much is your gold really worth? Let's say that you have two class rings made of 12 carat gold, meaning they are half gold. Together they weigh an ounce. You look on the Internet and find the spot price of gold is $900 an ounce. That means the gold in your rings is worth about $450. A cash-for-gold place is a business and is trying to make a profit. But if you are offered $75 for your rings, you are getting scammed.
(Looking for more? For extra info on this or the scoop on other fascinating topics, go to HowStuffWorks.com. Contact Marshall Brain, founder of HowStuffWorks, at marshall.brain@howstuffworks.com.)
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