Throughout history Gold has always been a fall back investment for individuals during times of financial uncertainty. With the deepening of the current recession, many investors have turned to gold as an investment alternative, driving gold price upward in recent years.
Supply and Demand Economics
Gold is a commodity and just like any other commodity, gold price is largely driven by supply and demand economics. In simple terms, the less there is available of a commodity in order to meet demand, the higher the price goes. When supply is higher than demand, the price drops.It is simple, yet especially with gold, price manipulation has been claimed to happen way too frequently.
Much of the supply of gold in the financial market since the 1990s has come from sales of gold bullion from the vaults of global central banks. While large portions of the gold market are and have historically been based in jewelry demand, global shifts have changed which countries are leading demand for gold jewelry. The five countries that primary drive gold jewelry demand are China, India, the United States, Italy and Turkey.
Finally, gold is used extensively in fuel cells and other technology-driven sectors.
Gold as Investment
Gold can be invested in as a commodity on the commodities markets. The most popular way to invest in gold in this manner is through gold futures with margins. Margins work by an investor purchasing a small percentage of the value of a gold contract. In essence the investor is making a bet that the gold price will either go up or down. The margin is the difference between the percentage they pay on the contract and the value of the contract at the time it is sold. If the investor bets correctly, then they have only risked a small amount of cash to purchase the contract, but made a profit on the actual sale of the contract. The broker takes the largest risk because they hold the difference between the two amounts.
Another method of gold investing is to take possession of actual gold coins or bullion This is not the easiest method of investing because of the cumbersome nature of gold possession. However, it is one way to insure that actual gold ownership is not in question. Investors who want to own actual gold can purchase United States gold coins from a bank or they can purchase coins from gold coin dealers.
There are speculations of the gold price moving up to challenge the $3,500 price mark by end of 2010, but whatever truth may lie in that, it is true that gold is indeed THE hot commodity of the year, and possibly will stay that way for quite a while, so don’t miss your chance.
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