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Gold as an Investment

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International Monetary Fund  Gold  Alternative Investments  Hedging  Precious Metals 

By - Tuesday 11 May 2010

Gold has long been held as a popular vehicle for investment by numerous speculators. Many individuals purchase the precious metal because it is generally viewed as being a safe investment against economic, social, political or currency-related failures or crises.

Restrictions on annual gold sales, coupled with the struggle for gold mining companies worldwide to meet the growing demand from gold jewelery and gold investment buyers, has helped to push the cost of gold steadily higher.

The world's premier gold mining nation, South Africa, has seen its annual gold output halve since 1998 and new growing mining facilities in China and Russia have failed to make up for the strong demand.

Why invest in gold?

The mined gold supply currently does not make up for the global demand for the product. This immediately creates a situation whereby because a large number of people are trying to buy a small amount of gold, prices are able to be pushed up.

Unlike traditional forms of investment in "paper money", gold is limited. This means that its price can not be devalued by a sudden and sharp increase in supply, making the commodity a "safe haven" against currency that could be undermined by rapid rises in inflation.

What influences the price of gold?

In a similar vein to many other investment markets, the price of gold is ultimately influenced by supply and demand in the market.

Central banks and the International Monetary Fund also play a role in setting the price of gold.

Other factors influence its price are bank failures, which could result in individuals taking part in a "bank run" and devaluing the metal, and low or negative interest rates - which could see demand for gold increase as people seek alternative forms of investment.

In addition, people see gold as a worthy and solid asset which will always be in some form of demand during times of war or crisis when people fear that their assets may be seized and that the currency may become worthless.

What will happen to the price of gold in the future?

Gold is currently outperforming the stock market and coupled with the US dollar is one of the only assets that is increasing in value - although historically the two have not followed each other. As the Greek crisis continues to worsen and bring many stock prices down, gold values have been increasing.ADNFCR-3415-ID-19768138-ADNFCR

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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.


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