Gold has a lot of practical applications now (although is of course still treated as a ‘precious’ metal of value), but hundreds of years ago it was just a shiny metal. Why did it demand value, because of it’s rarity? Why not copper, because it was too easily found? What made it valuable ahead of other similar metals?
I think it’s like this:
Due to their rarity, gold and silver are only available in limited quantities. This makes them suitable as a means of payment, as the limited availability of these materials allows them to have a relatively stable exchange value. As a means of payment, gold and silver are representative of goods that can be purchased with them - they have always had a certain exchange value.
Coins made of gold or silver, which were used as currencies early on, were not very forgery-proof. However, as the materials themselves are rare, good forgeries are only possible if the material is available. And the rarer the material used, the more forgery-proof the coin becomes, which is why it makes sense to mint coins with a high exchange value from rarer materials (bronze or copper for lower value coins, silver or even gold for coins with higher exchange value).
Early examples of inflation illustrate quite well how value and material are linked: In ancient Rome, for example, silver coins were used as a means of payment. Under Emperor Gallienus, there was massive inflation because he had the silver content of coins reduced to below 5% in order to finance military campaigns and other expenses (he basically created value out of nothing). This ultimately led to a loss of confidence in the currency and thus to a decline in the value of the coins, as they were not inherently forgery-proof (it became quite easy to mint counterfeit coins with such a low silver content).
However, the value of the material itself has always been variable and depended heavily on its rarity: When the Spanish imported large quantities of silver from their colonies in South America in the 16th century, the value of silver fell because the material became less scarce. This led to massive inflation throughout Europe.
The value is not so much determined by the material itself, but by the value that people ascribe to it at a certain time. There are also great historical examples of how speculative bubbles work: In the 17th century, tulip bulbs were at times traded at enormously high prices in the Netherlands because they were difficult to obtain and therefore rare - this made them coveted as a status symbol. However, this bubble finally burst in 1637 when traders could no longer find buyers due to the astronomical tulip bulb prices - demand was covered; the “Tulipmania” had ended. As a result, the merchants began to sell these tulip bulbs in “panic sales” at ever lower prices in order to recoup at least part of their investment. As a result, the price fell to near worthlessness.
Such speculative bubbles still exist today, of course. This is demonstrated very impressively time and again by cryptocurrencies, for example, which are not even material and have no central regulatory authority (such as a central bank) - their value results basically just from what someone is willing to pay at a certain point in time.