INVEST IN GOLD ?
I have been asked by numerous persons, “Should we invest in gold?” This is somewhat of a different investment to stocks and bonds, shares, and other equities, Gold is still regarded as a commodity but considered favorable as an investment. Its control and pricing policies have changed significantly over the years.
Investing directly in commodities, such as gold or oil, tends to be more difficult for investors than investing in stocks and bonds. A major reason for this is that stocks and bonds are readily transferable and easily accessible to the average investor. With gold one has to commit to a trader the amount and accept a certificate of ownership which the trader or his bank issues; or alternatively accept the (gold) bullion in whatever available form by a certain date.
However, the recent advent of more advanced financial instruments, gold, along with other commodities, has become much easier to invest in without having to buy the physical metal. There are now exchange traded funds (ETF) that replicate the movements of the underlying commodity, giving investors direct exposure. While not every commodity has an ETF, both gold and oil have ETFs. For example, the street follows Gold Shares trades on the New York Stock Exchange and can be traded at any time throughout the trading day. Each share of the ETF represents one-tenth of an ounce of gold, so if gold is currently $1800 an ounce, the gold ETF will trade at $180 per share. This investment product is one of the easiest and least expensive ways to access the gold market.
Investors looking to invest in gold directly have three choices: they can purchase the physical asset, they can purchase an ETF that replicates the price of gold, or they can trade futures and options in the commodities market.
Around twenty years ago the price of gold would be set by a group of producers and traders on the London Market one to three times a day depending on supply and demand data, and the price would be the second or noon fix. These days the big banks set the price depending also on supply and demand, but to the extent gold value is in savings or other disposal, that price may be adjusted up or down.
As long as there is a need for money, there is need for gold. Gold was, gold is, and gold forever will be! I am not certain that ‘will be’ is guaranteed, considering technologies that keep improving, but throughout History gold sufficed as money until shortly after World War II. Most of the Gold ever mined still exists in an accessible form as jewelry or ornaments, and may return back to the market.
Gold is more affected by demand considerations rather than supply situations. Can you imagine gold reaching such a price, that everyone having a portion of whatever size runs back to a refiner for a cash sale or rebate? So this demand consideration is what is holding the price from further climbing.
In the 80’s the Hunt Brothers of Texas decided to corner the Silver market by buying all the silver available. The price sky-rocketed to 55.00 per troy ounce, from around 10.00 per oz. Then the high price caused so much silver to be returned to the refiners by the public and producers that the refiners could not pay for a supply of silver scrap until one year after delivery to their refinery.
The currencies of all major countries are under severe pressure caused by massive Government Deficits; the more money that is printed and given to these economies lowers the price of the currency. (Wiki.)
If the returns on bonds, equities, and real estate does not compensate for the for falling currency value, then the demand for gold and other commodities increases, causing the prices of those commodities (including gold and other metals) to increase. Gold is the most responsive of the commodities (metal) to changes in market.
Jewelry is more than 66% of the total market for gold. As an industrial metal, gold is used in dentistry and medicine of around 11% of its supply, because it is unaffected by other common chemicals and is resistant to corrosion, and bacteria. It is more electropositive, malleable, and ductile than all other metals; this means it is in demand for certain products, except that for financial reasons the elevated prices prohibit sales on the market. People use their disposable income to buy jewelry, but if the price of gold is too high they might buy some other item. This is one of the reasons why gold prices are in regression these days.
My advice is to look at the declining price and buy as low as you can, so that there is profit when the commodity is rising; assuming that the world economic situation improves, and demand is justified.
(817 words: ramsur.wordpress)