Gold is one of the oldest and most fascinating of world markets. Historically, gold has been fit for different purposes. It’s versatile, malleable, has incredible conductivity capacity and medicinal properties.
Its allure found in jewellery and ornamentation has been well-documented for thousands of years. Gold’s a safe bet for protecting wealth. All of these factors affect the demand for gold, reflected in the fluctuating prices across international markets.
Purity at its best
The price of a piece of gold is determined by its karat value. Gold karat is determined by the percentage of pure gold that is actually within the metal compound – otherwise known as an alloy.
The highest purity is 24K and this has the highest value from an investor point of view. Lower concentrations of gold in the alloy are indicated with a lower number of carats and a subsequent lower market value. This karat value is a piece of essential information that can raise the eyebrows.
There are different instruments for investing in and owning gold, and these are adaptable to investors’ needs and personal tastes. Bullion, coins, and the markets of derivatives and intangibles offer a wide range of purchase options.
Bullion and bars are the most traditional gold formats. Their value is directly tied to several factors such as gold weight, gold purity (carats) and that old favourite of supply and demand. Gold bullion can be freely purchased in countries such as the UK, Canada or Switzerland, but such activity is forbidden in some other countries. As well as this, it is available in different weight options; 400 oz, 32 oz, 10 oz and so on.
Coins are very popular as an investment in gold, usually in a small one-ounce format. Just like bullion, the value of the gold in coins is determined by the purity of the alloy used, as well as the market forces of supply and demand. The collector’s feature comes into play here and can add exceptional value to certain coins based on their rarity and the reason they were minted.
This latter can be the case with commemorative coins, such as the limited edition coin produced to celebrate the Queen of England’s 90th birthday in June 2016.
The holy grail?
Gold is now the largest of all the precious metal markets. In fact, it is so large that trades in non-physical gold far exceed actual physical stocks of the metal. For example, in the London market considered the largest in the world, it is estimated that the volume of gold traded daily in derivatives is 600 times more than the amount of gold extracted from mines in the same period.
Every day, 5,500 ‘tonnes’ of gold is traded through these intangible instruments while just nine tonnes of gold is brought up from mines. In this market, prices are linked directly to the daily amounts of gold traded by the largest holders of gold reserves on the London market, (the Gold Bullion Market Associations, and the Bank of England), and the subsequent interaction of supply and demand.
Learn about How to trade gold at the best prices.
It’s all about economies of scale
Additionally, global events and economic conditions can directly affect the price of these derivatives, such as the monetary policies of the Federal Reserve in the United States and the European Central Bank – ECB. These policies can often affect the markets’ preference for gold in comparison with other investment options such as foreign exchange, or commodities like silver or copper.
And let’s face it. It’s just sexier. As Antoine de Rivarol, a Royalist French writer during the Revolutionary era, said, “Gold like the sun, which melts wax, but hardens clay, expands great souls.”
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Important disclaimer: this document is not an official research report and the views expressed in it are those of the authors. The authors are not registered research analysts and there is no assurance the trends mentioned will continue or that the forecasts discussed will be realised. Gold as a commodity is not a specified investment for the purpose of giving advice under the Financial Services and Markets Act 2000, therefore, this does not give rise to rights to claim compensation under the Financial Services Compensation Scheme.