Understanding Why the Gold Standard is So Shaky
Gold is still worth a lot, even though it is not worth quite as much as its historical value. The truth is that the value of gold is constantly fluctuating, rising to dramatic peaks and then suddenly crashing in value as commodity traders attempt to short sell their assets. Unique among commodities, gold is always in demand but its stock is never depleted. It just changes hands from owner to owner.
What Actually Makes Gold Valuable
As of July 2013, gold prices are about $1,300 per troy ounce. This is high compared to most decades, although the price was actually much higher just two years ago. What drives gold prices in today’s market is the fact most of it is held by investors as a security. Unlike a stock, gold cannot pay dividends. It can be sold at a higher price for a profit, but it can also lose value.
Gold is valuable because like oil it is consumed for so many things. Gold has always been used in jewelry, but it is increasingly being consumed in the electronics industry. Gold conducts electricity and heat better than copper and yet is more tarnish resistant than silver. Fine electronics use gold as a soldier and as wiring. Gold can be turned into salts and used in chemical industries.
Because gold has a constant demand, it has a base value. About 40 percent of all new gold mined every year is snatched up as a security. The bulk of all the gold in the world is held by private investors and world governments. Even gold jewelry is seen as an investment, as it can always be sold. Most of the gold that has ever been produced is still in a form that can be liquidated, and this accounts for its widely fluctuating prices.
Gold Simply is Not Booming
When gold is suddenly in demand, miners cannot increase their pace to satisfy consumers with a greater supply. Instead, investors and jewelry makers must purchase from a relatively fixed stockpile. As demand rises, entities that hold gold are less likely to sell. They might wait to take advantage of rising prices or are else afraid to be stripped of an important part of their portfolio. When sellers do not sell, gold prices continue to rise.
To make things even trickier, investors can buy gold without having to touch a bar. Gold is represented on stock markets as pieces of paper. The actual gold is housed in vaults or else is just a theory offered by a financial institution. Because anyone can buy gold at any time, markets around the world can rush on gold anytime they see fit.
This makes gold volatile and a tricky investment. A person who buys high must carefully monitor their gains. The market could crash at any time. When gold falls from a peak, it can stay low for decades. Anyone investing in gold should either see it as a long term security or else be prepared to sell on a dime when the value starts to fall. Gold is a forbidding material that has enriched a few and destroyed the fortunes of others.
Abi works within the financial investment sector and enjoys working we companies such as sheet metal suppliers Dynamic Metals who also stock stainless steel: 17-4ph and many other hard to find metals.