The Price of Gold and The Economics of investing in gold

Gold prices often reflect the state of the economy. There are some universal things that apply to the buying and selling of gold. When the price of gold is high, then the economy is in trouble. You can say the price of gold serves the barometer for the current and sometime future economic climate of a country. With so many investment options available like real estate, stocks and bonds why are more people talking about gold.

Gold is touted as the best hedge and an investment haven. Gold is very liquid. It is easy to sell gold to gold buyers whenever you need cash. Not only can you sell, but you can use your gold as collateral when applying for a loan. Investors know the importance of having a diverse portfolio, which includes assets like gold. Like most commodities the laws of supply and demand affect gold.

According to the World Gold Council, the total amount of gold in the mined in the world is 190,040 metric tons. However not all the gold mined is used. About 60 times the amount of mined gold is stockpiled. Upticks in mining activity or the slowing down of gold production aren’t enough to have a significant effect on the supply. 26 percent of the gold mined every year is supplied by gold buyers who buy it off ordinary people swapping their gold jewellery or gold coins and bars. 10 percent of the supply of all the mined gold goes to industry and the rest is used to make jewellery, coins and it is bought up by central banks.

The gold prices today reflect the beliefs that traders of commodities have these beliefs don’t have to with reality. When people think the economy is bad they will buy more gold and sell when the economy is too. Savvy investors know how gold works in relation to the health of any economy.

In July of 2011, investors were worried about how the US Congress would raise the county’s debt ceiling. On September 5, 2011 gold reached the peak level of $1,895/oz. By not raising the debt ceiling on time the federal government would end up defaulting in its debt. Before the sudden rise in the price of commodities in May, the price of Silver fell from 7.9% to $39.38/oz, gold dropped from its all time high of its all-time high of $1,556.79 to $1,514.99. Oil fell from $110.05 to $109.24 per barrel.

In 2010, George Soros, who is a well- know and respected commodities guru announced that gold was the ultimate bubble and the it was not safe any longer, some economic analysts predicted that gold would rise to $1,300 an ounce. Both these predictions were right. 2016 was an important year for gold. Great Britain voted to exit the European Union in 2016 and the price of gold shot up. On the day of the Brexit vote gold went up from $1,254.96 to $1,347.12. A lot of investors in the UK and elsewhere bought more gold to hedge against the euro’s decline. A year earlier the price of gold had been $1,061 a 25% increase from the 2014 price. Before the Brexit vote the price of gold looked like it would go back into the $1,000 /oz. but of course that didn’t happen.

Other things that have happened was that central banks across the globe were busy diversifying out of the Euro and the dollar and into gold. Which meant that the currency market was very volatile, a lot of people wondered it was time to buy more gold. There was a rise in the number of gold buyersshops as people rushed to sell unwanted gold jewellery. However, there were also a lot of people buying gold to hedge against inflation, there were those who were taking advantage of the historic price increases that happened between 2006-2009 and the miracle of that meteoric rise of the price of gold.