What changes the Gold Price?
Throughout history, Gold has been seen as a store of value. Gold items were often buried with pharaohs to use in the after-life, because gold is free from corrosion or decay.

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.

Gold becomes desired in times of Fear
When dollars were fully convertible into gold and silver, 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.

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.

War, Invasion, Looting
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.

Gold Investors
Investors may buy gold for a variety of reasons. Many desire to diversify their assets; some to hide wealth from tax authorities; others fear the effects of inflation on their wealth; many see it as a hedge against an economic depression or other serious crisis.

Learn how to Invest in Gold
Investment in gold can be done directly through bullion ownership, or indirectly through certificates, accounts, spread betting, derivatives or shares. Gold coins and jewellery is another method which is becoming increasingly popular. Ebay offers a ready marketplace for buying and selling 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. The number one reason most gold investors cite is that they see Gold as a hedge against inflation and the devaluation of fiat currency, especially in relation to the US dollar.

Gold versus Stocks
The performance of gold bullion is often compared to stocks. They are fundamentally different asset classes: gold is a store of value whereas stocks are a return on value (i.e. growth plus dividends). Stocks and bonds perform best in a stable political climate with strong property rights and little turmoil. Gold performs best in times of political mismanagement of the economy which leads to inflation.

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.

Gold's value versus the Money Supply of Fiat Currency
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 gold standard was ended 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. This, in part, has led to inflation and the collapse of the value of fiat money, such as the US dollar.