Home
Investing in Sovereigns
The Sovereign
Sovereigns on Ebay
How to Sell Gold
Fixing the Gold Price
Methods of Investing
Gold Standard
Silver Standard
Precious Metals
Collecting Coins
Coin Terms
Half Sovereigns
Gold Coins
Silver Coins
Price of Gold
Live Gold & Silver Prices
Historic Gold Prices
Historic Silver Prices
Gold Bullion
Sterling Silver
Royal Mint London
Perth Mint Australia
Canadian Mint
Mint Marks
Benedetto Pistrucci
Trial of the Pyx
Crown Gold
US Gold Eagle
US Silver Eagle
Gold Maple Leaf
Silver Maple
Krugerrand
Selling your Gold
Gold Price Manipulation?
Silver Price Manipulation?
Advertisers
Links
Terms of Use
Search
Store

Is Gold Investing for You?

The Gold Price
The usual benchmark for the price of gold is known as the London Gold Fixing, a twice-daily (telephone) meeting of representatives from five bullion-trading firms. Furthermore, there is active gold trading based on the intra-day spot price, derived from gold-trading markets around the world as they open and close throughout the day.

Custom Search

Factors influencing the Gold Price

This ancient Egyptian golden bowl was buried in the tomb of a pharaoh and today sits in the British Museum. Gold items were often buried with pharaohs to use in the after-life, because gold is free from corrosion or decay.

What was the Price of Gold in the Past?

To learn more, go to: Historic Gold Prices

Today, like all investments and commodities, the price of gold is ultimately driven by supply and demand, including hoarding and disposal. Unlike most other commodities, the hoarding and disposal plays a much bigger role in affecting the price, because most of the gold ever mined still exists and is potentially able to come on to the market for the right price. Given the huge quantity of hoarded gold, compared to the annual production, the price of gold is mainly affected by changes in sentiment, rather than changes in annual production.

According to the World Gold Council, annual mine production of gold over the last few years has been close to 2,500 tonnes. About 3,000 tonnes goes into jewelry or industrial/dental production, and around 500 tonnes goes to retail investors and exchange traded gold funds. This translates to an annual demand for gold to be 1000 tonnes in excess over mine production which has come from central bank sales and other disposal.

Learn about: Today's Gold & Silver Prices

Central banks and the International Monetary Fund play an important role in the gold price. At the end of 2004 central banks and official organizations held 19 percent of all above-ground gold as official gold reserves. The Washington Agreement on Gold (WAG), which dates from September 1999, limits gold sales by its members (Europe, United States, Japan, Australia, Bank for International Settlements and the International Monetary Fund) to less than 400 tonnes a year. European central banks, such as the Bank of England and Swiss National Bank, have been key sellers of gold over this period.
 

Although central banks do not generally announce gold purchases in advance, some, such as Russia, have expressed interest in growing their gold reserves again as of late 2005. In early 2006, China, which only holds 1.3% of its reserves in gold, announced that it was looking for ways to improve the returns on its official reserves. Many bulls hope that this signals that China might reposition more of its holdings into gold in line with other Central Banks.
 

In general, gold becomes more desirable in times of:

Bank Failures
When dollars were fully convertible into gold, both were regarded as money. However, most people preferred to carry around paper banknotes rather than the somewhat heavier and less divisible gold coins. If people feared their bank would fail, a bank run might have been the result. This is what happened in the USA during the Great Depression of the 1930s, leading President Roosevelt to impose a national emergency and to outlaw the holding of gold by US citizens - known as Executive Order 6102 which has since been ended.

Low or Negative Real Interest Rates
If the return on bonds, equities and real estate is not adequately compensating for risk and inflation then the demand for gold and other alternative investments such as commodities increases. An example of this is the period of Stagflation that occurred during the 1970s and which led to an economic bubble forming in precious metals.

Low Yields on Government Borrowing

When the yields on government borrowing falls to a very low level, money often moves out of Treasury Bonds etc, into other assets, such as gold.

War, Invasion, Looting, Crisis
In times of national crisis, people fear that their assets may be seized and that the currency may become worthless. They see gold as a solid asset which will always buy food or transportation. Thus in times of great uncertainty, particularly when war is feared, the demand for gold rises.

Types of Gold Investor
Investors may buy gold for a variety of reasons: among them include a desire to diversify their assets; to hide wealth from tax authorities; for reasons of political belief (e.g. libertarian); or out of fear of an economic depression or other serious crisis.

Methods of Investing in Gold
Investment in gold can be done directly through bullion ownership, or indirectly through certificates, accounts, spread betting, derivatives or shares.
 

Learn more: How to Invest in Gold

Investment Strategies: Fundamental Analysis
Investors using fundamental analysis analyze the macroeconomic situation, which includes international economic indicators, such as GDP growth rates, inflation, interest rates, productivity and energy prices. They would also analyze the total global gold supply versus demand. Over 2005 the World Gold Council estimated total global gold supply to be 3,859 tonnes and demand to be 3,754 tonnes, giving a surplus of 105 tonnes. Others point out that total mine production is only about 2,500 tonnes each year, leaving a 1,300 tonne deficit that must be made up by central bank or private sales. While gold production is unlikely to change in the near future, supply and demand due to private ownership is highly liquid and subject to rapid changes. This makes gold very different from almost every other commodity.

Investment Strategies: Technical Analysis
As with stocks, gold investors may base their investment decision partly on, or solely on, technical analysis. Typically, this involves analyzing chart patterns, moving averages, market trends and/or the economic cycle in order to speculate on the future price.

Using Leverage
Bullish investors may choose to leverage their position by borrowing money against their existing gold assets and then purchasing more gold on account with the loaned funds. In order to keep the cost of debt to a minimum, these individuals would normally seek a loan in the currency with the lowest borrowing rate, which, as of April 2006, was the Japanese yen. This technique is referred to as a "yen-gold carry trade". Leverage may increase investment gains but increases risk, as, if the gold price decreases, the investor may be subject to a margin call. Leverage is also an integral part of buying gold derivatives and unhedged gold mining company shares (see gold mining companies).

Price of Gold since 1968
For many years, the dollar was pegged to the gold standard. Historically, increases in the supply of fiat currency through increased money supply have caused the demand for gold to increase. There was a time when gold was money and vice versa. If citizens felt that there may be insufficient gold to cover the paper money in circulation, they would queue up at the bank to change their paper currency back into gold.

However, since the U.S. Dollar was made no longer convertible into gold on August 15, 1971, governments have been free to print as much money as they choose, without fear that their populations will come knocking on the central bank's door demanding to change their paper money back into gold.

In January 1959 US M3 money supply was $288.8 billion, and the official gold reserves of the United States was then 17,335.1 tonnes, or 557,336,000 ounces (there are 32,150.7 troy ounces in a tonne). That means that in 1959, there were $518 in circulation for every ounce of gold reserves held by the USA. Although the actual ratio of dollars to gold was $518 per ounce, the actual price, as fixed under the gold standard, was only $35 an ounce.
 

Learn about: Historic Silver Prices

By August 2005, the US M3 money supply had risen to $9,873.9 billion, whilst at the same time the Official Gold Holdings of the United States had fallen to just 8,133.5 tonnes, or 261.50 million Troy Ounces [19]. This means that by 2005, there were $37,831 in circulation for every troy ounce of gold held by the United States.

However, this increase of 75 times in the ratio of central bank gold holdings to debt does not allow for the fact that the gold standard was abandoned in 1971 and gold holdings have been deliberately and considerably reduced. Another far less dramatic way of looking at the same figures is this: In 1959 US government debt valued in gold was 8 billion Troy ounces, in 2005 US government debt was 20 billion ounces gold - an increase of 2.5 times!

The US Federal Reserve ceased publishing M3 data on 23 March 2006, with the last published data indicating a year-on-year growth rate of 8.23%. Central banks may see this as a reason to limit further increases in their reserves of dollars, and thus alternatives such as gold or the euro might be considered. Kitco Bullion Dealers, said gold was still benefiting from August 30, 2006 release of the minutes to the last rate-setting meeting of the US Federal Reserve. The minutes to the August 8, 2006 meeting, at which the Federal Open Market Committee kept short-term interest rates unchanged for the first time since 2004, supported the view that US borrowing costs have peaked.

Bulls versus Bears
The gold price peaked at around $850/oz t ($27,300,000 per tonne) in 1980, but in real terms it is still well below that as in 2008. Since April 2001 the gold price has more than tripled in value against the US dollar, prompting speculation to circulate that this long secular bear market (or the Great Commodities Depression) has ended and a bull market has returned. By 2007 it was back up to that price again, and has now broken through the symbolic $1,000 an oz.

The question is how high will gold rise against the dollar. However, if it is the dollar that is falling, perhaps we should ask: how much more will the dollar fall against gold?

Be careful when you buy Gold Coins

The tripling of the gold price since 2004 has predictably led to something of a stampede for the metal among private investors.

1. Buying Gold Coins in auctions
Be aware that bidding up the prices can outstrip the true value of gold - the ‘spot’ gold price - by 25 per cent even for the plainest coins. Rarer coins are sometimes bid up to an even higher premium.

2. Chasing after ‘rare’ Gold Coins
The US authorities have given warning that investors should beware of dealers charging exorbitant fees for coins that turn out to be anything but rare. In 2004 a British telesales company was shut down for selling gold coins at 700 per cent of true market value.

3. Newly minted ‘collectible’ Coins
As with supposedly ‘rare’ coins, so-called ‘collectible’ coins can cost a lot more than the value of the gold they contain. The Royal Mint charges mark-ups of 40 per cent plus. The new ‘Countdown to London 2012’ series, priced at £1,295, costs almost twice the value of the coin’s gold content.

4. Rank over-pricing
Many reputable-looking companies can charge way over the odds for gold.

5. Unallocated Gold Storage Accounts
When a bank sells you gold but holds it in safe-keeping, the account is often unallocated. This means you do not actually own any gold. Instead the bank owes you a certain amount of the metal. This makes you a creditor of the bank.

PLEASE SEEK PROFESSIONAL ADVICE BEFORE YOU BUY OR SELL GOLD, SILVER & COINS.