The Gold Market Explained!

Gold is known throughout the world for its rich history and its value as the store of wealth.
Where it comes from?
Who it’s used by?
What are the factors that influence its price in the markets?

Since 1905 South Africa has been the world’s largest producer of gold. However, in 2007 China surpassed South African production by 16,000 tons. Today China, Australia, Russia and the U.S. collectively account for almost 40% of the world’s annual gold mine production.

Due to its versatile characteristics, Gold is used for a variety of purposes from making jewellery, to use in electronics and health care. Gold also has many industrial uses due to its electrical conductivity and its resistance to corrosion but the most important use of gold remains as a store of wealth.

Now global central banks play an important role in the world gold market because the price of gold typically rises in line with living costs. Central banks use it as a way to mitigate against inflation and fluctuations in the value of domestic currencies in February of 2014. Global central banks combined held around 30,000 tons of gold now. The largest holder is the United States. Making up more than 70% of the US s total foreign reserves, but across central banks as a whole the average gold to foreign currency reserve ratio varies the average is around 10% but in Europe, the ratios tend to be much higher for example of all Portugal’s foreign reserves 84% is held in gold the UK by contrast only holds about 12% of its reserves in gold. Like most commodities, the basic principles of supply and demand play a major role in determining the price in the financial markets.

The world’s supply of gold is relatively stable just small additions are added each year depending on how much is mined. So it is demand that typically has a large impact on goal prices. High demand raises prices low demand tends to mean lower prices.

The physical nature of gold also means that it retains more of its value than other types of financial assets. Particularly during periods of uncertainty not only economic and financial uncertainty but also when we have periods of geopolitical and rest. For similar reasons gold prices of historically risen when currencies have depreciated.

When investors see a currency losing value they typically look to gold as an alternative in an attempt to preserve capital. This demand can ultimately drive prices of gold higher. Demand for gold has grown significantly in recent years. products innovation has enabled greater accessibility for investors. Now along with the traditional method of buying gold coins or bars or even jewellery. Investors can access gold through mutual funds such as unit trusts or open-ended investment companies or through exchange-traded funds known as ETFs.

These products might invest directly in physical gold they might invest in the companies that mined gold or they may offer exposure to gold through other means for example an ETF tracks the performance of an index such as the Philadelphia gold and silver index, providing exposure to the price of gold bullion without directly investing into it and having to deal with the cost of physically holding gold.

In summary, gold is typically used as a part of a diversified portfolio of assets and the market offers several ways for investors to access it.