The king of commodities, gold has a rich history as a currency, a store of value, and a thing of beauty. Its scarcity and enduring value have made it an attractive asset for preserving wealth. Throughout history, gold has played a key role in currency systems, serving as a component of coins used for trade. The factors that influence the gold market are varied, and it’s important to understand their impact on gold’s price before investing in gold.
Factors Affecting The Gold Market
The gold market brings together a diverse array of participants, including long-term investors, speculators, and industrial users.
The supply of gold is determined by several key factors, including reserves, resources, and production. Reserves refer to the gold that has already been extracted and can be profitably mined, while resources refer to the remainder of the world’s gold that is known to exist but cannot be extracted using current technology. Production refers to the amount of gold extracted and processed each year.
Demand for gold is driven primarily by its reputation as a safe haven asset and inflation-resistant store of value. Unlike other metals such as copper or aluminum, gold is not widely used in industrial applications, making its demand more closely tied to its status as a financial asset.
In addition to the commodity-specific factors, macroeconomic factors such as interest rates and inflation can have an impact on the price of gold. For example, in 2022, commodity prices declined as interest rates rose and investors sought the stability of the US dollar during uncertain economic times.
How To Determine the Best Way To Buy Gold
If you want to buy gold, there are various options available, each with its own pros and cons. Buying physical gold, either in the form of gold bars are specialized coins like Kruger Rands, is the obvious choice, although it comes with significant risk and costs associated with storing the gold correctly.
Investors who wish to gain exposure to the price of gold without owning any physical gold have a number of options available, such as gold ETFs, gold stocks, and gold futures.
Gold ETFs offer an investment vehicle that provides exposure to gold either through holding physical gold or by investing in stocks of companies dealing in gold. Meanwhile, gold stocks allow investors to buy directly into companies that are involved in
Investing in gold futures involves an agreement to buy or sell gold at a specified price in the future, which can be traded directly through the Commodity Exchange, Inc. or through a synthetic product like a CFD. It’s important to note that investing in CFDs carries more risk than buying the underlying asset, and caution should be exercised.
Below are four gold-based investments to consider:
- Newmont Mining Corporation (NEM): A company that mines gold as its primary business, Newport’s stock price is closely tied to the price of gold.
- SPDR Gold Shares ETF (GLD): The GLD fund tracks the price of gold bullion.
- iShares Gold Trust ETF (IAU): Holding physical gold bullion, the price of the iShares Gold Trust is thus closely linked to the price of gold.
- VanEck Vectors Gold Miners ETF (GDX): Tracks a basket of gold mining stocks from around the world.
The History of Gold’s Price
Gold has gone through a crazy ride over the past 50 years. Back in the early 70s, the price of gold was fixed by the US government at $35 per ounce, as part of the Bretton Woods system. However, in 1971, the US government announced the “Nixon shock,” which involved abandoning the gold standard and allowing the value of the US dollar to float freely against other currencies. This led to a significant increase in the price of gold, as investors sought to protect their wealth from inflation and currency devaluation.
No longer joined to the US dollar, gold was free to roam, reaching an all-time high of over $800 per ounce in 1980 before dropping to around $350 per ounce by the mid-90s. Yet, as central banks continued to print money excessively, leading to inflation worldwide, investors rushed to gold as a safe haven, driving its price up to over $2,000 per ounce by 2020. The price of gold has cooled off somewhat since then, but the precious metal is starting to attract interest in the wake of economic uncertainty worldwide.
Key Gold Statistics
- The atomic weight of gold is 196.97 u.
- The boiling point of gold is 2,807 degrees Celsius.
- The melting point is 1,064 degrees Celsius.
- 244,000 metric tons of gold have been discovered to date.
- 187,000 metric tons of gold have been historically produced.
- Current underground reserves of gold equal 57,000 metric tons.
- China is currently the world’s largest producer of gold, followed by Australia, Russia, the United States, and Canada, according to the United States Geological Survey.
Is Now A Good Time To Invest In Gold?
After a difficult 2022, markets across the world are recovering slightly, showing some cautious optimism on the part of investors. Gold remains a fan favorite due to its inflation-resistant characteristics and thousand-year track record. Whether or not now is a good time to invest in gold depends on your unique personal situation and investment goals.