The magical property of gold is ... trust, the same property that decides over the value of a fiat currency. As gold is limited and fiat can be made infinite, people tend to trust fiat less. But if people would suddenly lose trust into gold, it's value would be gone. It has uses besides object of value, but the need in electronics and jewelry are far below the amount of gold available. So the value of gold really is trust.
The value of gold has changed in history a lot. The value of gold is increasing compared to dollar over the course of years, but that is also a result of inflation of the currency. Look at Wikipedia, these graphs adjusted for inflation. One covers a shorter timeframe, one many centuries (and therefore not only Dollar as reference):
http://en.wikipedia.org/wiki/File:Gold_price_in_USD.png
http://de.wikipedia.org/wiki/Datei:Historico_ouro.gif
Gold isn't completely stable in value, but historically it has gained more trust than currencies that were under control of the powerful people of the time. Also there is one thing to notice: if economy is good, the interest in gold is usually low, the price is also low. If an economic crisis is in place, many people try to invest in gold, the value increases. The value of gold will decrease again, if the crisis is over. But sometimes an economic crisis crashes the currency, so keeping your values in fiat currency isn't safe either.
If a gold-bound currency is better ... who knows. It is an artificial boundary on the amount of money that exists in the currency. Problem is usually, the powers that can mint money, have often also the power to lift these boundaries. But the current system is not sane: banks (not government) can create money for debts. So that every money that exists also is creating a debt in the same amount. That system has to crash sometimes.
