When it comes to gold it is one of the most highly traded assets on the market today. It is being traded all over the world 24 hours a day which means it can be very hard to determine the price. It also means that the price of gold constantly fluctuates based upon the activity in the marketplace. As gold is purchased and sold, the price of gold then goes up and down. Inherently the price of gold is set by supply and demand.
Gold is highly desirable for several reasons but there are three main things that will drive up the demand for gold.
This type of demand comes from individual, institutional and government demand for gold. This deals with all sorts of gold including small bullion coins to bars, and even large positions in the ETFs (Exchange Traded Funds). This can also refer to central bank reserves which are now moving away from storing paper currencies and relying more and more on gold. As the world’s nations start keeping their reserves in gold and buying more gold than they are selling, the price of gold rises.
Gold is widely desired because it is used in a wide range of industrial uses. 12% of the worldwide demand for gold can be attributed to the medical and industrial needs for gold. Gold is used in precision electronics like GPS units and in medical devices such as stents. When the demand for these items increases (which continues to happen as technology improves), then the demand for gold increases.
Even after hundreds of years, jewelry remains as the largest demand for gold. 54% of the worldwide demand for gold is for jewelry. China, India and the United States consume the most jewelry in the world by volume.
Value Of The Dollar
This is another thing that can drive the price of gold. The stronger the value of the U.S. dollar the lower the price of gold tends to be. The weaker the value of the U.S. dollar the higher the price of gold tends to be. This can be attributed to the fact that investors tend to move toward gold when they do not have faith in the dollar or the economy. When the dollar is strong, investors will choose to trade in dollars rather than investing in gold.
The production of gold is also a major factor that can affect prices. Gold mine production has been on a decline since the turn of the century. Most of the easy gold has already been mined so now it is much harder to mine for gold and it is more costly. So now that it costs more to get less gold than before the price of gold has been on the rise. This can change as new mining techniques are discovered and the process becomes easier and safer. In 2010, gold production increased by 3% as several new large scale mines began operation.
The Price Of Gold
The world continues to be in love with gold and all the gold does. It is a status symbol and an almost necessary ingredient in jewelry for much of the developed world. Today gold prices have risen to record highs and continue to inspire investors all over the country and the world to turn to gold as a solid bet for the future. However, with so many different factors going into the price of gold, it is important to keep in mind that all of these different factors must be in balance for gold prices to rise. If just one or two of these factors are no longer in sync with the rest, gold prices can begin to decline and that investment may not be as good as it once was.
How Does The Price Affect Gold Investing?
If you are thinking about investing in gold or keeping part of your assets in gold, the price should not deter you. However, as the price of gold can be volatile you do not want the majority of your assets in gold. A good rule of thumb is anywhere between 10 to 30% for dedicated gold investors. Even investors who really believe in investing in gold typically do not invest more than 30% of their assets into gold. Others who just want to keep gold as a backup will keep closer to 10% or even less. You should find investments that you believe are a good bet and will serve you well. Gold could be just one of many investments that will fund your retirement.
If you do choose to invest in gold it is very important to deal with a company that you can trust. You want to make sure you are paying a fair price for your gold and that it is being stored in a safe place.