Q1: How does gold differ from fiat currency in its value?
The fiat and gold currencies differ substantially in value due to their underlying fundamentals and the factors that influence their worth.
Gold, a precious metal, has intrinsic value due to its limited supply, physical properties, and the historical importance of it as a storage of worth. Its price is constant and does not depend on any government or financial institution's support. Gold has been utilized as a medium of exchange and an instrument to preserve wealth throughout history, and has a tendency to keep its value during times of economic uncertainty or high inflation.
Fiat currency is, however, is a form of money that is issued and guaranteed by a state. Its worth is due to the trust and confidence individuals have in the security of the government that issued it and its economic system. Like gold, the fiat currency does not have intrinsic value and can be taken out of circulation by central banks. The value of currency that is fiat fluctuates because of various variables like monetary policy, economy conditions, as well as inflation. In some cases, when confidence in the government or currency has been lost and the currency is devalued, it can experience rapid devaluation or even disappear completely.
The value of gold comes from its inherent properties and its scarcity. Fiat currency's value depends on the trust in the issuing government, and the ability of its government to maintain economic stability.
Q2: What gives fiat currency and gold their respective values?
Gold and fiat currency get their values from various sources and elements and factors, all of which influence their value in the world economy.
In summary, gold's value is determined by its inherent properties, scarcity, historical importance, and its role as a security asset while fiat currency's value is determined by the confidence in the government that issued it and central bank's policies economic fundamentals and forex markets.