Will gold become worthless one day? To be absolutely honest right off the bat here, while this may not be the most irrational of all fears, it is probably well up there in the top ten. I would say so at least.
Answer: No. It is highly unlikely that gold could become worthless one day … and here’s why.
What determines the price of gold?
Like all goods and services that people buy and sell, the price is determined by the interaction of demand and supply.
In simple terms, demand is the market pressure exerted by buyers, while supply is the market pressure exerted by sellers. And as with many markets, some buyers can become sellers and sellers can become buyers when either the price moves far enough or conditions change.
One of the unusual aspects of gold, that ends up reflected in the price, is the enormous emotional attachment we humans have had for gold since time immemorial.
Some history and pre-history
Let’s start with the pre-history.1)Verna Necropolis. https://en.wikipedia.org/wiki/Varna_Necropolis
One of the oldest gravesites in the world at Varna in Bulgaria dating back to 4600 to 4200 years BCE has nearly 300 graves many of which contained items of gold jewelry buried along with the bodies. In total archeologists found 6 kilos of gold, worth about $350,000 today.
Gold jewelry has also been found at other prehistoric sites in Western Europe dating from the bronze age, i.e. between 3100 and 300 years BCE.
Many of the earliest writings around the world tell of mankind’s fascination for gold. Gold was mined in ancient Egypt, Greece, and China. In fact, you would be hard-pressed to find historical records of any people that were not enamored about gold.
Gold was first used to fill teeth as far back as 700 BCE by the Etruscans, who inhabited parts of present-day Italy.2)The use of gold in dentistry. https://link.springer.com/content/pdf/10.1007/BF03216551.pdf
More recently we started using gold to make electrical contacts in electronics.
The supply of gold
We know of a total of around 200,000 tons of gold on planet earth.3)How much gold has been mined? https://www.gold.org/about-gold/gold-supply/gold-mining/how-much-gold
About two-thirds of that has already been mined and extracted while a third remains in the ground. About 2,500 to 3,000 tons of gold are mined and extracted every year. The exact quantity depends on the prevailing prices and whether specific mines can extract gold profitably. As prices change, some mines move in and out of profitability.
The simple fact is that investor sentiment is the main driver of demand for gold and hence determines the gold price.
The reverse side of that is that changes in investor sentiment can also drive the supply of gold. Investors who have large gold holdings may decide to sell if they foresee a drop in market prices that they think may not recover anytime soon. That would increase the supply of gold in the market and hence create downward pressure on the price.
The demand for gold
The demand for gold comes from four main areas of the economy.
Firstly from investors, secondly central banks as currency reserves, in third place jewelry and then industrial and medical uses in the last place.
The net result is that as already noted, it is predominantly investor sentiment that drives the demand for gold.
What could turn over the apple cart?
This is in the context of the relatively stable interplay between demand and supply in the gold market. What could really throw this off completely, and as it were, upturn the apple cart?
Could the demand for gold fizzle and die?
In light of the extensive history of man’s love, fascination, obsession, the quest for, etc. the beloved metal this would seem highly unlikely.
I suppose that collectively we could all decide to give up the modern world, go and live off berries and fruit, develop a passion for sublime poetry and evolve to become entirely disinterested in material things. As attractive as such a life might seem, for a split second or so, I doubt we will get there anytime soon.
So the demand for gold is likely to stay with us.
What about the supply of gold?
The supply of gold is an area where some unconventional thinkers like to imagine up ways that we could all suddenly get more gold than would be good for us. The main ideas floating around on this are,
- asteroid mining
- deep-sea mining
- discovery of new deposits
- transmutation using particle physics, accelerators, or whatever
Alright, I’ll admit I added the last one just for fun. But let’s take a look at each of these in turn.
Asteroid mining isn’t really as wacky as it at first sounds. In theory at least. The basic logic is quite simple.4)A Techno-Economic Analysis of Asteroid Mining. https://arxiv.org/ftp/arxiv/papers/1810/1810.03836.pdf5)Asteroid mining. https://en.wikipedia.org/wiki/Asteroid_mining
When the Earth was a young planet is was molten all the way through without a hard crust on the surface. The gravitational force pulled all the heavy metals to the center of the Earth. With the passage of time, the planet cooled and the hard surface crust was formed, which was about 4 billion years ago. At this time heavy metals on the surface were very rare indeed.
As extraterrestrial luck would have it, at some point the surface of the Earth was showered with asteroids many of which were rich in heavy metals including gold, iron, cobalt, platinum, palladium, and rhodium.
Effectively, asteroids already account for most of the heavy metals extracted since man started mining. Though volcanic eruptions and flows to the surface do account for some of the deposits mined.
In 2012 the first would-be asteroid mining company was founded. Others followed. Alongside the race to succeed in space tourism, asteroid mining has fostered its own little space race. Or at least the notional concept of one.
Right now the rewards of asteroid mining are still very much a vague promise of lots of wealth sometime in the future. There was a fair bit of hype and hopeful speculation written on this subject a few years ago. Things have gone mostly quiet since then. It seems the imaginative futurologists and commercial entities are waiting for NASA missions to return with some asteroid samples.
I don’t want to diss asteroid mining entirely. Probably it will happen at some point in the future. But a quick perusal of the various academic papers written on this subject could be summarized as follows.
- Asteroids come in three classes
- C-type – most common, mostly consist of water (ice) and traces of other elements
- S-type – less common, have some water and many metals but very low concentrations of the rare ones like gold and platinum
- M-type – very rare, similar to S-type but have ten times the concentration of the very rare metals
- All these asteroids are in the asteroid belt, between Mars and Jupiter
- Futurologists consider three possible ways to mine asteroids
- Mining and extracting on the asteroid itself
- Dragging the asteroid to a lunar orbit for mining
- Dragging the asteroid to an Earth orbit for mining
- Nobody has worked out which is the most viable, yet
- The first suggested objectives for asteroid mining are:
- for water, to split into hydrogen and oxygen to make fuel for space travel, and more mining
- for platinum, because it is so rare on earth.
- The eggheads know that new technologies will have to be developed
- They haven’t yet proposed a roadmap for technology development
They are worried that if they bring back too much platinum the price would drop and the mining would not be financially viable.
In summary, it is a very complex endeavor with so many unknowns. Nobody is even willing to propose a timeline when asteroid mining might become technologically feasible or financially viable. The first target materials would be water and platinum, so not yet gold. But I suppose once someone did manage to mine platinum from an asteroid, gold would follow at some point.
It is a reasonably safe assumption that asteroid mining is not going to flood the planet with enough gold to send the price tumbling for quite a few years yet.
In contrast to asteroid mining, deep-sea mining has started but only in the national waters of Japan and of Papau New Guinea.6)History’s largest mining operation is about to begin. https://www.theatlantic.com/magazine/archive/2020/01/20000-feet-under-the-sea/603040/7)The future of deep seabed mining. https://www.maritime-executive.com/editorials/the-future-of-deep-seabed-mining
Those projects were halted though. The real prizes of interest are nodules of manganese and other metals that lie on and near the ocean floor, large sulfide formations, and cobalt crusts mostly in international waters.
The International Seabed Authority, a United Nations body has been at work trying to draft international agreements that will allow and regulate mining the seabed.
Mining the deep seas has some very significant environmental concerns. The techniques being proposed involve,
- scraping off the first few inches of the ocean floor to collect the nodules of metal that have indeed been found to litter parts of the ocean floor.
- cutting away or scraping the sulfide or cobalt formations, and then extracting the desired metal deposits.
The problem is that all of these techniques churn up the ocean floor and create vast quantities or plumes of sludge and unwanted material that the miners are just going to dump back into the ocean. The plumes will spread for many miles and this is just going to mess up ocean ecosystems to no end.
Deep-sea mining has its own considerable technical challenges to overcome. Equipment that is to operate on the deep ocean floor has to withstand pressures of astronomical magnitude.
The earliest estimates are that we could see the first viable results of deep-sea mining sometime around 2025 to 2027. But other experts are doubtful whether that is achievable yet because of the ecological concerns and the technical challenges.
As with the objectives of asteroid mining, deep-sea mining’s first targets are not going to be gold. Deep-sea miners are likely to target nickel, cobalt, and manganese first. This is because mining these metals on land is expensive and environmentally damaging. And, for example, most of the cobalt comes from mines in the Democratic Republic of Congo which is a very unstable, unsafe, and corrupt country.
In summary, largely because of the environmental concerns, deep-sea mining, if it happens, will be very controlled and contained and will not target the extraction of gold among its first objectives.
I think we have all heard that life on earth started in the oceans and without the oceans, life on land would not last.
We just can’t afford to mess up the oceans more than we already have. So we had better hope that deep-sea mining, when it does go ahead happens slowly and carefully so techniques can be developed that will progressively reduce the environmental impacts.
Otherwise, we are going to have a lot more to worry about than just an oversupply of precious metals depressing prices.
Discovery of new deposits on land
The reason we have been thinking about mining asteroids and the deep sea is the known deposits of metals on land, including gold, are being exhausted and new discoveries are becoming less frequent, smaller and more costly, and difficult to mine.8)How much gold is there left to mine in the world? https://www.bbc.com/news/business-54230737
Also, mining on land has huge environmental impacts not the least of which is the destruction of ecosystems. Something we are all becoming more concerned about for obvious reasons.
So even though Antarctica, for example, may have some fabulous quantities of precious materials, including gold, that could be extracted the costs and inevitable environmental impacts are likely to mean we don’t pursue those deposits. That is unless we get to a point where new techniques make it possible with acceptable risks.
Yes. You can make gold from other heavy metals, but this is through a nuclear reaction rather than a chemical reaction.9)Can gold be created from other elements? https://www.wtamu.edu/~cbaird/sq/2014/05/02/can-gold-be-created-from-other-elements/
Just indulging in a little nuclear physics here so that this makes sense, an atom of radioactively stable gold consists of a nucleus of 79 protons, 79 electrons, and 118 neutrons.
For a little more clarity, nuclear physicists refer to radioactively stable gold as AU197. AU is the chemical symbol for gold and 197 is the atomic mass which is just the number of protons plus the number of neutrons. (79 + 118 = 197)
It is the number of protons in the nucleus that determines which element it is and that takes a lot of energy to change.
The most obvious and easiest way to make an atom of gold through nuclear physics is to either remove one proton from a mercury atom, which has 80 protons or add one proton to a platinum atom which has 78 protons.
Clearly, it would not be economic to convert platinum to gold, as platinum is more precious than gold, but converting mercury can be done economically in theory, if energy costs were near zero.
In fact, scientists first converted mercury into gold in 1941 at the Harvard cyclotron particle accelerator. Unfortunately, the process resulted in a mixture of radioactive isotopes of gold which then would need to be converted into stable gold by further radioactive processes.
Since then a few ways to convert isotopes of naturally occurring mercury into stable gold have been pioneered, but all of these require so much energy that the cost of the energy exceeds the value of gold created by orders of magnitude. So it is not economically viable by a very wide margin unless the price of gold soars to astronomical heights or the cost of energy plummets to near nothing.
Also for environmental reasons, the transmutation of metals in nuclear reactors to produce precious metals on an industrial scale would not work.
Alchemy is a practice that goes back to some of the earliest written records in many ancient cultures around the world.10)Alchemy. https://en.wikipedia.org/wiki/Alchemy
It is a bit too easy to laugh at and dismiss alchemy because of their quest to transmute base metals into precious metals among other lofty goals. In particular, there are stories of alchemists spending lifetimes trying to convert lead into gold. Just for reference, the process of transmuting base metals into precious metals is called crysopoeia.
On the flip side, much work of the early alchemists laid the foundations of modern chemical science. Most of their practices and pursuits had a practical dimension and a spiritual dimension and they were usually engaged across the board in trying to push the boundaries of knowledge for the better.
Most of mankind’s civilized history is characterized by those in power trying to retain control. That often meant there were guardians of official knowledge. That would include what we today call scientific knowledge. And these guardians held onto their power by suppressing any challenges to officially accepted knowledge.
The suppression of scientific discoveries by church authorities has many famous examples, like Galileo. On the other hand, there were also shorter periods when those in power favored scientific experimentation. Peter the Great in Russia is one such example.
Many alchemical writings are cryptic and often written in some sort of obscure code. One reason for this was to avoid persecution by church officials. Another stated reason was that only a worthy alchemist who had done all the necessary spiritual work on purifying themselves would be able to understand the full meaning of the texts and decipher the formulas.
So I think we can conclude, that unless Fred and George Weasley, of Harry Potter fame, decided to branch out from magical fireworks into the transmutation of metals, we can assume that alchemy will not be increasing the supply of gold any time soon.
Things that were once rare.
Aluminum is a good example.11)Why aluminum is no longer a precious metal. https://www.mgsrefining.com/blog/2017/05/18/why-aluminum-is-no-longer-a-precious-metal/ 12)The Hall-Héroult process. https://en.wikipedia.org/wiki/Hall–Héroult_process
Up to the 1880s aluminum was more precious than gold and was highly prized in jewelry and other artifacts. Even though aluminum is one of the most abundant substances in the crust of the planet, it was extremely difficult and costly to extract.
That situation was solved in 1886 when the Hall-Heroult process was developed. The impact on the market price was dramatic. In the year 1850 one kilo of aluminum cost $1,200, by 1890 that had dropped to $1 a kilo
There is one important contrast between aluminum and gold. Deposits of gold are rare, whereas the supply of aluminum from reserves of bauxite ore is expected to last for centuries.
Another example of substances that were prized but are now abundant is spices. In the middle ages, spices were very rare, highly valued, and usually only enjoyed by royalty, aristocrats, and wealthy merchants. Some spices were only grown close to their places of native origin and their cultivation was closely guarded by the occupants of the area. The spices that did make it to Europe came overland from the other side of the world.
The quest for spices was actually one of the main factors that inspired the age of exploration when seafarers from Western Europe took to the seas to seek out new sea routes to the spice islands of what is now Indonesia.
A few hundred years later and the development of agricultural techniques brought us to where we are today. These same spices are now in abundant supply, grown around the world and we can all buy them at grocery stores for a few dollars a jar.
Exploding supply or collapsing demand
Both aluminum and spices are examples of once-rare items that became abundant and as a result, the market price of these commodities plummeted.
There are other examples of items that were once prized and highly valued but are now less valuable because the demand collapsed. Collectibles can easily fall into this category. Not many people are collecting stamps these days as people who inherited stamp collections prized by a deceased family member can confirm.
A friend of mine inherited two boxes full of stamps from his father who had diligently collected for decades and was convinced they constituted a veritable gold mine
My friend took them to a stamp dealer who went through them all and pulled out a half dozen sheets that he said might be worth a few hundred dollars each. The rest were worthless.
So what is going to happen with gold?
I think we have established that it is highly improbable that demand will shrink significantly.
We have also examined the possible sources of increased supply. Frankly, they all seem to be a bit of a long shot.
I think we can safely conclude that gold is not going anywhere fast on the downside, demand will always be there and on the supply side, it is still going to be rare and possibly becoming more scarce into the future.
Questions and answers
Q. Will gold go down?
A. That is a $64,000 question. In the short term, gold may well go down in price. In the medium, to long-term, it is more likely that the economy will tip into a commodities bull market that would then probably pull the gold price up. Also mounting inflationary pressures and investor fears could result in a flight to gold.
Q. Is it a good time to buy gold?
A. It is probably a good time to buy gold as the price is dropping in the short term. The medium to long-term prospects for the gold price are good. But of course, the value of any investment can rise and fall and past performance is no guarantee of future performance.
Q. Does gold actually have any value?
A. The value of gold is largely because of investor demand and because it has been used as a medium of exchange and store of value for millennia. Gold does have some intrinsic value for the electronics industry and for dentistry and other medical applications.
If like me you are reasonably sure that gold will not become worthless one day, rather the reverse now could be a good time to start building a position in physical gold.
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|↑1||Verna Necropolis. https://en.wikipedia.org/wiki/Varna_Necropolis|
|↑2||The use of gold in dentistry. https://link.springer.com/content/pdf/10.1007/BF03216551.pdf|
|↑3||How much gold has been mined? https://www.gold.org/about-gold/gold-supply/gold-mining/how-much-gold|
|↑4||A Techno-Economic Analysis of Asteroid Mining. https://arxiv.org/ftp/arxiv/papers/1810/1810.03836.pdf|
|↑5||Asteroid mining. https://en.wikipedia.org/wiki/Asteroid_mining|
|↑6||History’s largest mining operation is about to begin. https://www.theatlantic.com/magazine/archive/2020/01/20000-feet-under-the-sea/603040/|
|↑7||The future of deep seabed mining. https://www.maritime-executive.com/editorials/the-future-of-deep-seabed-mining|
|↑8||How much gold is there left to mine in the world? https://www.bbc.com/news/business-54230737|
|↑9||Can gold be created from other elements? https://www.wtamu.edu/~cbaird/sq/2014/05/02/can-gold-be-created-from-other-elements/|
|↑11||Why aluminum is no longer a precious metal. https://www.mgsrefining.com/blog/2017/05/18/why-aluminum-is-no-longer-a-precious-metal/|
|↑12||The Hall-Héroult process. https://en.wikipedia.org/wiki/Hall–Héroult_process|