Finances & Money

Everything you Need to Know About the Value of Gold

Over the years, investors have sought to diversify their portfolios by buying gold and take full advantage of any future price increases. At the peak of the financial crisis in 2008, many investors were buying gold to protect themselves against a possible financial catastrophe.

If you are investing for fun, gold is an ideal investment. There are people who buy gold coins just because they enjoy the feeling of owning gold. For such people, gold sovereigns can be quite profitable. Gold sovereign price depends on the current gold prices and the gold content of the coins. The value of gold is unique and is not affected by increases or decreases in the prices of other asset classes. Its valuation is almost always a reflection of investor sentiment. Another great way to invest in gold is by buying gold stocks. This is because you are buying into a company is professionally hedging and growing.

Here is everything you need to know about the price of gold:

1.Gold price is not stable

Like any other commodity, demand and supply determine the prices of gold. That is why gold is not considered a stable store of value. It is not immune to price swings and when the government attempts to fix its value, then that value is just as unreliable as the value dollar bill which swings from time to time.

2.Gold is nothing more than a commodity

While most of us consider gold to be a special status symbol, it is basically just a metal. However, this does not mean that it should be cheaper. It simply means that it’s vulnerable to adverse market conditions. The reason its price continues to rise is because its supply has not matched its demand.

3.Gold price versus currency movements

The fact that gold prices are dollar denominated means that its price is strongly influenced by currency movements, especially the US dollar. When the dollar falls, gold prices tend to go higher because a falling dollar makes other currencies stronger.

4.Gold price versus inflation

When the prices of goods and services are high, the price of gold goes higher although this is not always guaranteed. Inflation almost always signifies economic growth. When the economy grows, the Federal Reserve increases the money supply which makes gold and other commodities more expensive.

5.Gold prices are not backed by physical gold

The price of gold is set by investors who trade in derivative contracts that are not necessarily backed by actual gold. These contracts are simply promises to deliver gold. They can also be promises to deliver the cash equivalent. So when you acquire a gold share, what you have bought is a proxy that represents gold.

In summary, most gold advocates will tell you that investing in gold coins is the best way to safeguard your investment. Of course, there are many factors that you need to consider before deciding whether this investment is for you. Ideally, investments should be held for the long term. So if you are investing in gold, be ready to hold on to it without being swayed by short-term price fluctuations.

 

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Susan Paige

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