Gold has long been a fall back investment for individuals during times of financial insecurity. With the deepening of the current recession, many investors have turned to gold as an investment option, driving the value of gold upward in recent years.
The Economics of Supply and Demand
Gold is a commodity and like any other commodity, the price is largely driven by supply and demand economics. In simple terms, the less there is available of a commodity in order to meet demand, the higher the price goes. When supply is higher than demand, the price drops.
Much of the supply of gold in the market since the 1990s has come from sales of gold bullion from the vaults of global central banks. While large portions of the gold market are and have historically been based in jewelry demand, global shifts have changed which countries are leading demand for gold jewelry. The five nations that primary drive gold jewelry demand are China, India, the United States, Italy and Turkey.In many of these countries, gold is intertwined into the culture. Gold demands are also spread around the entire world, with 72 percent of demand in Subcontinental Asia and the Middle East as of 2007. These numbers are likely to have shifted as the world economy has changed and shifted since then.
Industrial Uses for Gold
Besides jewelry demand, gold is also used in multiple industrial applications. It is used in electronic and biomedical applications because of its high resistance to corrosion and bacterial growth. Also it is highly bio-compatible, making it very useful for medical components. Finally, gold is used extensively in fuel cells and other technology-driven sectors.
Gold as Investment
Gold Investing on the commodities market is yet another possibility. The most popular way to invest in gold in this manner is through gold futures with margins. Margins work by an investor purchasing a small percentage of the value of a gold contract. In essence the investor is making a bet that the price of gold will either go up or down. The margin is the variation between the percentage they pay on the contract and the value of the contract at the time it is sold. If the investor bets right, then they have only risked a small amount of money to purchase the contract, but made a profit on the actual sale of the contract. The broker takes the largest risk because they hold the variation between the two quantities.
Taking possession of physical bullion is another method of gold investing. This is not the easiest method of investing because of the cumbersome nature of gold possession. Nevertheless, that is one sure way to ensure your ownership is not questioned under any circumstances. Investors who want to own actual gold can purchase United States gold coins from a bank or they can purchase coins from gold coin dealers.
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