The gold is considered to be a precious metal which is used by the investors who buy it as the hedge against political or social condition in the country. Investments are made on gold specially when there is inflation, deflation, currency devaluation or massive Government deficit. During a social disorder or a period of market decline gold is transformed into a currency from a commodity in respect of its utility. The economy of all the major countries says that the more the printing money goes into the economy the less becomes the currency value. But the value of pure gold will remain the same and so keeping purchasing power in mind gold is the best option for all the time for investment. If other investment opportunities like real estate, bond strategy or equity market strategy return do not compensate the risk and stagflation then the precious metals like gold are used for proper investment and along with that the demand for these commodities increases at a higher rate at that stage.
Factors Determining Price of Gold
The price of gold is determined by the market demand and supply and the buying-selling of gold shares that is called speculation. Gold that is mined and valued for its sale and saving is particularly in the form of bar or bullion, jewelry with fine weight that comes into market with a right price. Instead of being driven by the production or supply factor the price is more affected by demand. For the last few years the production of the gold has been reported by World Gold Council to be about 2500 tonnes of which 2000 tonnes are used by jewelry or medical sector and the rest 500 tonnes being used by retail investors and exchange trading gold funds.
Gold in Jewelry Sector
Jewelry sector takes a major portion, almost one-third of the annual demand market of gold. India stands as the largest consuming country in respect of gold jewelry after China and USA, having 27% of the total demand. Indian consumers bought 900 tonnes gold out of the total world gold market.12% of the market demand goes into the industrial, dentistry and medical section, for gold has electrical and thermal properties to be utilized in these fields. In the period of financial crisis of 2007-2010 due to the growing middleclass trend to follow western culture and lifestyle there has been a huge fluctuation in the industrial and jewelry sectors of gold demands. By 2007 Chinas investment grew up to 20% of the world market. In most of the Asian countries the well-known forms or pieces of jewelry like chains or bracelets are termed as investment jewelry. The buyers generally purchase gold to protect their savings during market shocks.
Growth at Price Level
Worlds gold mining companies have been unable to meet the growing demand of jewelry and since 1998 worlds number one gold mining country South Africa has also been reported to have its annual gold production halved where China and Russia also faced the same problem in spite of their remarkable growth in the field. But during five years up to the year 2008 gold investment has returned to 131% and including South Africa, USA Indian consumers who invested on gold in 2007 has been able to enjoy the price of gold raising at high level.