Gold has become a hot investment opportunity in the last few years, and more people are seriously considering making gold a part of their portfolio. If you’re thinking you’d like to delve into the wonderful world of precious metal investing yourself, you should however, first understand the several factors that drive the price of gold. Here are the basics.
1. Demand vs. Supply
Like most commodities, the basic principles of supply and demand play a major role in determining the price of gold. However, due to the physical limitations of mining for gold, the supply of gold in the world remains relatively stable (with the addition of the small amounts that are mined every year). This means that demand has a much larger impact on gold prices than supply does. When gold consumption increases, so does the price; the only thing that will drive prices down in a significant way is a decrease in demand.
2. Struggling Markets
When the economy falters, it tends to send people into panic mode. When people are in panic mode, they like to invest in things that are proven and tangible in order to hold on to some semblance of security. This is why people flock to gold investment when the rest of the market is struggling; gold has held its value throughout the centuries, and remains an enduring and universally recognized symbol of currency and wealth. The proven worth of gold provides comfort to anxious investors. Because of the increased demand for gold during tough economic times, the price gets driven up, meaning that gold helps to buoy investment portfolios when the rest of the market is struggling.
3. Currency Devaluation
When currency loses value in relation to other currencies, it’s called currency devaluation. When investors see their currency losing worth, they tend to flock to gold and other precious metals for many of the reasons listed above (security, proven worth over time etc.). Gold is seen as a secure way to keep assets intact when the future of a currency seems uncertain. If a currency becomes worthless, investors will have gold to fall back on (if they were smart enough to invest in gold beforehand, that is). This increased demand for gold when the future of a currency seems uncertain drives the price of gold up.
4. Practical Applications
Gold isn’t just an object of beauty and monetary value; it has many practical applications as well. We use gold in electronics, computers, dentistry, medicine and much more. When the demand for gold in any of these industries fluctuates, it’s going to impact the price of gold.
If you’re interested in learning about how to buy gold, contact us today to find out if investing in gold is right for you. Armed with the knowledge of what factors affect the price of gold and the expertise of long-term gold investors behind you, you should be well equipped to delve into the world of gold investments.