All That glitters is not gold. The only thing that gold does is glitter.

After the recent surge in gold prices I began wondering what made gold the last bastion of hope for all investors. Not even crude oil earned this respect. First ill start off by analyzing about gold. What is gold? Its an element with an atomic number of 79. It shows metal like properties. Its highly malleable and ductile. Its lustrous and its chemically nonreactive with most common chemicals and its quite rare (probably these might be its greatest and only virtues). It has no other worthy properties to extol about.

So what made this such a sought after commodity? Probably to answer that question we might have to go back in time. Since time immemorial man has been fascinated by gold (dont ask me why its been only gold and not anything else) Basically this fascination led man to start decorating himself with gold. Gold started to become a commodity of desire for mankind. The kings and queens of long gone dynasties began fancying gold and diamonds. Since they were like the rockstars of that era there was no questioning about the beauty or the awesomeness of gold. This fascination simply started to grow over time. Its rarity and chemical inertness ensured that it continued to be out of reach (hence the aspiration) of the common man.

This made gold (and silver) the choice of kings for minting coins ( with all the royal paraphernalia stamped on it) . We might recall how valiant attempts, by ingenous idiots like Muhammad Bin Thuglaq , to mint coins with copper caused serious counterfeiting problems. This made the sovereign(the monarch to be precise) to loose control of the economy , which means they loose a lot of tax and they have no money for their opulence and to fund their armies. Thus as previously stated its rarity proved to gold's greatest asset.

The practice of gold coins were prevalent in many civilization based on the amount of trading they did and the availability of gold. For instance if gold was a very very rare resource (even by normal standards) then the people saw it fit to use paper currency which was backed by gold. If the particular area relied a lot on foreign trade then gold continued to be a standard medium of barter (which is quite evident from the amount of gold which was found in the Padmanadhaswamy temple in Thiruvananthapuram, Kerala being one of the most ancient trading posts of the world which traded with almost every civilization in the world)

Finally due to a huge restriction in the number of gold coins that could possibly be minted with gold and the huge trouble of transporting gold for minting caused governments to move to the gold standard. Where in the government holds gold backing and prints currency equivalent to the value of the gold it holds. This system allowed people to redeem their cash to gold when ever they choose. The value of the currency in gold was fixed by the government. This caused huge problems of smuggling (legally smuggling , you could take with you a thousand pounds from London to Hongkong or Singapore which was a part of the British Empire and exchange the cash for gold, this was as good as smuggling) . Due to the this countries kept switching on and off the gold standards during war and peace times.

Then finally after to WW2 the Brettons Wood system was introduced by US among the Allied nations in order to build the accelerate the growth of the ailing economies. This is essentially like all the economies of the world will not back their currency with gold but with US dollars while US while follow the gold standard. (once again gold)

This put such a huge pressure on the US economy to maintain gold reserves. Nixon during his presidency kicked out the Bretton Woods system and made the dollar a FIAT CURRENCY. A fiat curency is a type fo currency which ahs no backing in gold or anything but just the promise of the federal government to honor the currency. (thats why there was a huge huge furor when S and P downgraded US treasury bonds (which is as bad as downgrading the dollar) ,its just a question of trust)

Well you might wonder to what purpose this boring lecture on economics serves. The bottom line im trying to drive is that Mr.Gold manages to survive and sustain as mankind's most favorite muse for the entire period of human evolution. Well I can understand it if the folks back in the bronze age admired gold the fact that people continue to admire it is simply amazing (given that currency is completely decoupled from gold). This admiration is probably forcing investors to still see gold as a very safe investment. (as gold has no other intrinsic value)

Think of it, money which could be used by investors to fund R and D and to fund new industries , because of the uncertainties in the economy is being transferred into GOLD!! What is adding value to gold?? not its use in the industry, not its ability to generate electricity, not its ability to feed the millions of starving people and definitely not its ability to be beaten into wafer thin chips. The thing which is adding value to gold is the fact that human beings covet it.

After having said all this, what I still dont understand is WHY IN GOD'S NAME DO PEOPLE STILL GET ATTRACTED TO GOLD? ! Can someone please tell me why?