Just finished doing a search through the Dope archives and couldn’t believe I couldn’t find a link to this question. Quite frankly I believe the answer is so obvious that I’ll probably end up embarrassed I asked. But nonetheless, I need to know: why is gold the monetary standard of most forms of currency? I realize it’s scarcity, but aside from ornamental purposes is it really very useful given it’s malleability? Second: how long has gold been established as the currency standard, and considering there are more valuable substances on the planet, why aren’t they the standard instead?
All cultures seem to recognize gold as a neat thing to have. It retains its luster by being relatively inert so it doesn’t oxidize.
I don’t think it is much in the way of a monetary standard any more but, the only thing money has going for it is its acceptablity. I. e, someone who has goods or services that you want will accept payment in the kind of money you have.
Gold has relatively universal acceptability.
Some info and history on the gold standard.
It apparently hasn’t been the Gold Standard since 1914.
We’ve gone over the gold standard a few times in GQ, so I must call your search skills into doubt. Ask in ATMB how to most effectively search the SDMB.
As for why gold: Well, not everyone has used gold. Mainly, it’s been the big civilizations that need a store of value that doesn’t degrade at all with time or travel. If you’re a small island civilization, shells make more sense, as they are actually available and they are similarly proof against age. Salt and coca are examples of things that have also been used at various times in various places as stores of value.
So, what makes a good store of value?
[ul]
[li]Stability over time: Something that rots won’t do well. If you want to be able to store your wealth over long periods (or bury it with you in a giant tomb), you don’t want coca leaves or suchlike.[/li][li]Rarity: Money can’t grow on trees. 
If it’s too common, you get runaway inflation and your economy collapses. Of course, it has to actually exist in sufficient quantities, too. If you base your monetary system around a rare earth, you’ll have problems related to how big your economy can grow before you run out of stuff to back things up with. This is a problem of the gold standard.[/li][li]Recognized value: People like shiny things. Even before gold’s great conductivity was known or even useful, it was seen as shiny and beautiful and, therefore, desirable. Even now, gold has a value based more on its lustrousness and tradtional value than its actual utility. Diamonds are an extreme example of this, given how common they really are.[/li][/ul]
So, are we on the gold system now? Don’t be silly. Our money is floating, which means its value is based on how much everyone has determined it to be worth on the open market. That gives us plenty of room to go up, and plenty of room to go down. So far, our money has proven to be generally inflationary, but on a rather slow gain that hasn’t proven too bad for things in general.
As a side note, some countries have `hitched’ their currencies to ours. China, for example, has defined the value of the yuan to be a specific fraction of the value of the US dollar. This can help a country whose economy is otherwise on the skids, but it puts that country’s fiscal future in the hands of whoever we have chosen to dictate monetary policy to us. Alan Greenspan is a capable man, but how good will the next person be?
Gold is actually worth something, it has been worth something for thousands of years. When the United States runs half a trillion dollar deficits each year, and also runs half a trillion dollar balance of trade deficits, then gold will increase in value. Gold is now $412 an ounce, quite a bit above when bush took office.
YOu dont have to worry how many paper dollars the federal reserve prints, now many factories and jobs are sent to asia, if you own gold coins.
If you are on the gold standard, you dont have inflation, and the dollar is strong. The United States was on the gold standard from its inception until the 1930’s and inflation was just about zero during that entire time period.
Countries go off the gold standard when they want to spend more than what they have, when they want to devalue their currency, like now.
So is it a good idea to invest in gold right now? If so, how do I do it?
Don’t wanna turn this thread into a debate, so I’ll just add that in the 1930’s, inflation was definitely not a problem in the US.
DISCLAIMER: This is not investment advice; I am not a licensed financial adviser.
Assuming that your purchases will be small (in the few hundred-few thousand dollar range), you’ll probably want to buy gold bullion coins (U.S. Eagle, Canadian Maple Leaf, Kruggerrand, etc.) Look in the Yellow Pages under “Coins”, “Gold”, “Jewelry”, and the like. Buy only one-ounce coins; the premiums on smaller coins are too high. I won’t tell you to stay away from the numismatic market (where the value of the coin is not directly related to its bullion content), but be well aware in advance that it’s a very different market, requiring entirely different knowledge from trading in bullion.
Depending on who you buy from and where you buy it, the spread (difference between what you can buy for and sell for at any given time) will probably be about $25-30/oz.
There are “electronic gold tokens” available on the Net. Good luck if you try them; you’ll need it.
$412/oz is historically high. This may not be the time to buy. Gold is a “sterile” (i.e., non-income-producing investment) that does well in times of uncertainty and high inflation. This latter is unlikely to describe First World economies any time soon.
I’ll also add that Bretton Woods agreement was a postwar thing, not 1930’s.
The durability factor of gold as a medium of currency has been mentioned. I’d like to add:
-divisibility. You can divide a 100 gram piece of gold into ten 10-gram pieces of gold. Impossible with singular objects like gemstones without altering or destroying their value.
-homogeneity. Provided it’s pure, one piece of gold is like any other piece of gold the same weight. No endless haggling about the quality of the piece. In fact, when gold really took off as money was the discovery of the touchstone- a type of stone that when you scraped a piece of gold across it would leave a streak whose color was a very accurate gauge of the purity of the gold.