Around the world, investors prefer to buy gold, especially during these days of tough economy. Although there was a temporary dip in the price of gold in 2008 due to recession, demand for gold has been steadily increasing. Is this a unique phenomenon of the United States dollar, or is it an international phenomenon since it involves the major currencies of the world?
Gold has been the symbol of power, strength, wealth, warmth, happiness, love, hope, optimism, intelligence, justice, balance, perfection, summer, harvest and fertility.
Asian countries which are growing in economy invest in gold more than the westerners. India and China are growing as big consumers of gold market. Demand for gold is increasing in India by leaps and bounds. Statistics say that the Indians buy about 25% of the world’s gold, purchasing approximately 800 tons of gold every year, mostly for jewelry.
Why do people invest in gold?
Of all the precious metals, gold has been the most popular as an investment throughout history. Wars were fought for filling treasuries with gold. It has been the most valuable and highly sought-after precious metal for coinage, jewelry, and other arts since long before the beginning of recorded history and it has been the means of monetary exchange.
People of all civilizations have been investing in gold as a hedge or harbor against economic, political, or social fiat currency crises. It has been their economic armor even when investment market declines, or national debt increases dangerously, or currency fails causing despair, or they are threatened by inflation, war and social unrest.
Five vital reasons why people go for gold investment
1) Gold behaves more like a currency than a commodity
The primary reason for gold investment is that gold behaves more like a currency than a commodity. Commodity prices change horribly in correlation with crisis in society. But change in gold price is low in correlation with other commodities.
2) People still believe in gold
People still strongly believe in gold although many governments have abandoned gold standards and direct convertibility of currencies to gold. Many rich people who invest in gold prefer to store gold in form of bullion coins or bars as a hedge against inflation or other economic disruptions.
3) When dollar declines people go for gold
There has been a remarkable correlation between the price of gold and dollar stability. If the value of dollar falls the price of gold seems to move in the upward in trend. If you analyze the trend over several years, you can find the price of gold has moved up in a number of major currencies including dollar. This also shows that the policies of the Federal Reserve System and several other central banks around the world affect the demand and price of gold.
4) Gold as a deciding factor
When the price of gold moves upward in multiple currencies, including dollar, investors worldwide have to take resort in gold since they find as a better way to hedge their economic futures against a decline in the purchasing power of their own currencies.
5) Demand for saving
People go for gold as a means of saving or investment whenever there is an economic crisis. Like any other commodity the price goes up when there is greater demand. So also when there is a great demand as well as speculation for gold automatically its price goes up. But the difference with gold is that unlike most other commodities saving and disposal plays a larger role in affecting its demand and price than its consumption.
Speculations about gold
CNBC reports that gold on the Comex jumped above $1,600 an ounce for the first time on Monday, July 18, 2011, a psychologically important level that may also provide motivation for those looking to sell gold jewelry and coins.
Jim Steel, chief commodities analyst at HSBC, points out that the events in Greece, inflation in China, food prices have affected the economy of the whole world. During the past few days, many investors sold oil, copper, and agricultural commodities, but they have bought the precious metals—gold and silver.
Steel also points out that the world is concerned about how the jewelry market would react, particularly abroad. He says, “What we’re seeing now is a slowing of physical demand based on price, in China and India, in emerging markets in general, and we’re also seeing some increase in scrap metal that’s been refined and put back in the system.”
Gold has been a standard for economy. New gold used in world consumption is about 50% in jewelry, 40% in investments, and 10% in industry. Though gold production has decreased, its role in world economy is very vital.