Gold as an investment is the most common among precious metals. Investors generally buy gold as a way to diversify risk, especially by using futures contracts and derivatives. The gold market, like other stocks, is prone to uncertainty and volatility. Gold has the most powerful safe haven and hedging opportunities across a number of countries relative to other precious metals used for investment.
Gold has been used as money throughout history and was, until recently, a common standard for currency equivalents unique to economic regions or countries. In the latter part of the 19th century, several European countries adopted gold standards until they were temporarily suspended in the financial crises of the First World War. The system existed until the Nixon Shock of 1971, when the US officially revoked the US dollar’s direct gold-to-dollar convertibility and made the transition to a fiat currency system. In 2000, Swiss Franc was the last major currency to be separated from gold.
Over the past few years, we’ve seen massive gold price fluctuations from its all-time high of 1980 then US$ 850 per troy ounce — around $2,500 in 2019 money— to its current level at US$ 1305 per troy ounce (about € 1,154.87). It should be noted that the gold price in 2011 was US$ 1913 per troy ounce at its peak ever. Gold is a worldwide volatility barometer-and its impact on financial markets plus a natural desire for stability and having an asset easily exchanged, gold could still be the product to take off.
The gold price is driven by supply and demand, including speculative demand, like most commodities. Unlike most other goods, however, saving and disposal have a greater role to play in influencing their price than their consumption. Most of the gold that has ever been extracted still remains in an accessible form, such as bullion and mass-produced jewellery, with little interest over its fine weight, so it is almost as liquid as bullion and can come back onto the gold market.
There are three sound reasons to believe that prices will rise: First, Asia’s and the Middle East’s growing economies have led to a huge surge in demand–especially for gold jewellery. To prove one needs look no further than the global sales of gold jewellery, which over the past few years has increased at a very steady pace. Second, a growing number of private investors around the world have invested some or all of their investments in gold as a protection against economic or political uncertainty. If investors fear that the future is uncertain demand for gold is always on the rise. This is probably due to the fact that the gold price continues to move in the opposite direction of almost all other traditional asset classes–making it ideal when investors want to diversify. Second, the mining industry is unable to meet demand. Figures show that gold was purchased in excess of 4,000 tons, but only 2,700 tons were extracted in 2011 and 2,860 tons in 2014–260 tons more than the previous highest peak in 2001. Moreover, production decreases by an average of 4% per year and it will take up to ten years for the industry to increase supply by the volume required.
Gold will always be a safe haven for investors for times of economic uncertainty. Making the right move related to an investment in gold means that you could diversify your portfolio and be calm that you can withstand an economic downturn without losing all your money.