Gold remains the most popular of all precious metals for investment purposes.
Investors like gold because they see it as a safe harbor against political, economic and monetary crises such as runaway national debt, wars, and recession. Speculators also like to buy gold early into an economic boom with the hope of selling it before the economy goes bust to reap a profit.
Throughout history, gold has been used in financial systems and a basis for currency recognized internationally. Most European nations had their currency pegged to a gold standard starting in the 1800s. This practice continued until after the Second World War, when the Bretton Woods monetary system pegged the U.S. dollar’s value to gold at a $35 per troy ounce rate. This state of affairs continued until 1971, when the U.S. arbitrarily pulled out of the system in response to an economic crisis.
Today, gold retains an important role in the world economy, largely because of the psychological association between gold and wealth thousands of years of history has drummed into the public consciousness.
Gold is traded constantly based on its intra-day spot price, which is determined in London each day. Currently, the price of gold is near $1,200 per troy ounce, an increase of nearly 300 percent since 2006. Actual value of gold still remains below its 1981 peak of $599, which translates to about $1,417 in today’s dollars.
There are a variety of factors influencing the price of gold. Supply and demand, of course plays a big role. In gold trading, hoarding and disposal plays a disproportionate role compared to other commodities because nearly all the gold ever mined is still accessible and can emerge onto the market at any time if the price is right. Experts estimate that about 158,000 tons of gold have been mined in human history.
Central banks play a huge role in gold prcing. For example, a 1999 agreement called the Washington Agreement on Gold put a limit on gold sales by the nations of Europe, the U.S., Australia and Japan and some international banks. Members were limited to sales of no more than 500 tons per year. In 2009 the agreement scaled back the allowable limit to 400 tons. It is believed that this agreement has helped encourage the increase in gold prices.
There are a variety of methods of investing in gold, including bars, coins, bullion and financial instruments. Bars and bullion are perhaps the most straightforward methods of investing in gold, with coins being more complicated and various financial instruments such as ETFs being very sophisticated.
In general, gold prices tend to increase in times of economic woe, making the current world economic situation a time ripe for investing in gold. As the world economy continues to be mired in the economic doldrums, it is highly likely that gold will retain its current value and perhaps continue to increase in value.
