Gold is the most popular as an investment in all the precious metals. Investors generally buy gold as a hedge or harbor against economic, political, or social fiat currency crises. The gold market is subject to speculation as are other markets. During the current global financial crisis, suggest that gold behaves more like a currency than a commodity.
The falling dollar has been pushing up the price of gold to new heights as also the political climate in the United States. Civil unrest in different parts of the world has also been a contributing factor to the meteoric rise of gold prices.
Gold's strong start to the year continued in the second quarter of 2011 where total global gold demand measured 919.8 tones, worth US$44.5bn, with a broad-based support across all sectors and geographies. The two markets that stood out - once again - as major contributors to overall growth were India and China. These two markets accounted for 52% of global end-user investment and 55% of global jewellery demand. Year-on-year growth in total consumer demand was 38% in India and 25% in China, compared with a global growth rate of 7%. JewelLery demand of 442.5 tones was 6% higher year-on-year as a number of key markets posted solid growth. India, China and Turkey (which together account for over 50% of global jewellery demand) generated combined growth of 16% although this was countered by weakness in other markets, most notably those in the west. The US$ value measure of global gold jewellery demand grew by 34% year-on-year to reach US$21.4bn. Gold is currently around 51% higher than it was a year. That seems like a really big move compared to the previous steady price rise over the last 10 years.
The chart that follows covers every situation in the last ten years where the price of gold year over year is anywhere near as high as it currently is.
Many analysts have forecast that gold prices will eventually hit $3,000 an ounce, after hitting a record $1,800/ounce last week; economic experts at Kansas State University have warned that it is only a matter of time before the bubble bursts. The huge federal deficit and a deteriorating economy have made many investors fearful of the US economy entering a period of stagnation, driving stock prices downward, said Lloyd Thomas, an economics professor at Kansas State University.
9th Nov 2010 A.M. | $1416.25 |
9th Nov 2010 P.M. | $1421.00 |
7th Dec 2010 A.M. | $1426.00 |
2nd March 2011 P.M. | $1435.50 |
7th March 2011 A.M. | $1437.00 |
7th March 2011 P.M. | $1437.50 |
23rd March 2011 P.M. | $1439.50 |
24th March 2011 A.M. | $1441.25 |
24th March 2011 A.M. | $1447.00 |
6th April 2011 A.M. | $1457.00 |
6th April 2011 P.M. | $1461.50 |
8th April 2011 A.M. | $1470.50 |
15th April 2011 A.M. | $1472.50 |
15th April 2011 P.M. | $1476.75 |
18th April 2011 A.M. | $1484.50 |
18th April 2011 P.M. | $1493.00 |
19th April 2011 A.M. | $1495.00 |
20th April 2011 A.M. | $1505.00 |
21st April 2011 A.M. | $1507.00 |
28th April 2011 P.M. | $1535.50 |
3rd May 2011 A.M. | $1546.50 |
22nd June 2011 P.M. | $1552.50 |
11th July 2011 P.M. | $1555.50 |
12th July 2011 P.M. | $1555.50 |
13th July 2011 A.M. | $1571.50 |
13th July 2011 P.M. | $1579.00 |
14th July 2011 A.M. | $1592.50 |
18th July 2011 A.M. | $1598.25 |
18th July 2011 P.M. | $1599.00 |
19th July 2011 A.M. | $1602.00 |
25th July 2011 A.M. | $1618.50 |
27th July 2011 A.M. | $1621.00 |
27th July 2011 P.M. | $1625.00 |
29th July 2011 P.M. | $1628.50 |
2nd August 2011 P.M. | $1637.75 |
3rd August 2011 A.M. | $1667.50 |
3rd August 2011 P.M. | $1669.25 |
4th August 2011 P.M. | $1679.50 |
8th August 2011 A.M. | $1709.75 |
9th August 2011 A.M. | $1770.00 |
10th August 2011 P.M. | $1772.00 |
11th August 2011 A.M. | $1786.00 |
17th August 2011 A.M. | $1792.00 |
18th August 2011 A.M. | $1794.50 |
18th August 2011 P.M. | $1824.00 |
19th August 2011 A.M. | $1862.00 |
There are main five factors which are affect gold price.
(1) The supply and demand factor is pivotal in determining the gold price. Many analysts argue there is not enough gold being produced to satisfy rising demand. The above ground stock of gold is around 160,000 metric tons and grows about 2,400 tons a year, which is only 1.75 %, while demand keeps expanding.
(2) The most popular reason to own gold is as a hedge against inflation. The theory is as paper currency loses value, gold will retain its purchasing power, making it a safe place to preserve one's wealth. Historically, gold has traded in opposition to the dollar. A stronger dollar makes dollar-backed commodities like gold more expensive to buy in other currencies, which weakens demand.
(3) Huge double-digit price movements in gold could mean that there are big buyers and sellers in the market like central banks. Central banks in general regard reserve allocation as an ongoing government policy. Although the governments consider fundamentals like dollar weakness and the sustainability of gold as money, they don’t trade gold; they buy it as an investment. They will buy gold when they feel ... gold reserves are too low when compared to its other holdings. Central banks tend to be price agnostic but are heavy buyers and sellers.
(4) Gold investing was reserved for gold bugs -- those who thought global wealth would be eradicated and gold would be the only currency left standing. However, as the financial crisis rocked global markets at the end of 2008, a trend started to develop of regular investors allocating a certain amount of their portfolio into gold. The recommended percentage is typically between 5%-20% depending on how aggressive the investor wants to be or just how much he/she needs to diversify against other assets. This shift was underscored by gold purchases from big name investors who had profited off of the subprime crisis by betting against mortgage-backed securities.
(5) Price manipulation is the most controversial theory that has circulated among gold bugs for 20 years. Some argue that gold prices have been illegally suppressed over the last two decades by central banks and governments. GATA or Gold Anti-Trust Action Committee is the biggest complainant. Central banks reportedly have 32,000 tons gold, with the International Monetary Fund accounting for2,800 tons. Under the Washington Agreement on Gold, its members can sell a maximum of 400 tons year, thereby restricting the amount of gold in the open market place.GATA argues that central banks in actuality have less than 15,000 tons of gold, and that the missing gold has been secretly sold or leased into the market to prevent gold prices from rising to their actual value.
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