How Does Gold Change in Value, and Why Do People Buy It?


Gold never goes out of style. It’s shiny, it’s valuable, and it’s synonymous with wealth. People have been in love with this precious metal for millennia, since ancient Egyptian kings covered everything in gold — and then buried themselves under piles of even more of the stuff.

For a while, gold was used in currencies to buy goods and services. Then it was used to back the value of paper currencies, like the American dollar. When the U.S. stopped valuing their currencies based on gold and switched to a faith-based system, it only increased in value as more people bought and sold it.

These days, people buy and sell gold all the time like it’s a stock. You’ve probably even heard a family member tell you to “put all your money in gold.” Yet why do some people invest in gold instead of actual stocks and bonds? Better yet, how is it valued in the first place?

Let’s take a look.

Like stocks, bonds, and other securities, you can buy and sell gold at different values.

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Shutterstock

The goal in investing is to buy low and sell high at a gain. So if you buy gold at $41.49 an ounce today, the value could be $42 tomorrow…or $40.

The value of gold changes based on supply and demand.

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Shutterstock

If there is more demand for gold but it becomes harder and more expensive to mine, then the price will go up. If there is more supply but less demand for buying gold, price will go down.

When the economy is bad and the dollar isn’t as valuable, people buy more gold and its value increases.

Flickr/James Matthews
Flickr/James Matthews

Some stocks and bonds can go from having a value to being worthless. Gold, however, will always have some value, since it’s a scarce and finite metal. When the dollar is strong, however, its value will decrease and so will demand. In this case, people would be more interested in trading currencies.

Banks sometimes sell a portion of their tangible (paper) currencies and buy gold instead.

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Shutterstock

This often drives up the value and price.

Jewelry and other luxury goods are made with gold (duh).

Flickr/Mike Beales
Flickr/Mike Beales

When these items are in higher demand, gold buying is in demand, too. This drives up the price of gold.


When buying gold, you don’t actually have to physically buy it and hold onto it. You can buy gold shares through brokerages and investment firms dealing with commodities. You can even buy ETFs that buy different kinds of gold-related stocks and funds.

Should you invest in gold? That depends. If the U.S. dollar is weak, if there’s political uncertainty (like, say, the 2016 election), or if supply is limited, then maybe consider adding this precious metal to your portfolio to diversify your investments. If you’re more comfortable dealing in stocks and bonds, don’t want to follow the precious metals market, and don’t want to pay the higher tax that gold commands (compared to stocks), then maybe stick with what you know.

Whatever you do, just don’t sell any gold to a pawn shop. They’ll never give you a fair value for your gold, and they’re generally unpleasant to be around.

Share this story with your friends below, and maybe convince then to stop buying pawn shop jewelry.