Why trade in gold?  

Historically this iconic metal has been the true “safe haven” during periods of inflation, monetary instability and economic recession.

Wars, political crises and looting have driven people to invest in gold. Even now, people plunge into the gold market when uncertainties seem threatening. The metal has a true aura and world trust in it remains undiminished.

Apart from its “hedge” qualities gold makes a good investment at most times. The market is international and, for example, events in India (a major trader in gold) can produce a surge in buying or selling that it is completely independent of the rest of the world. It is an exciting market to enter and profits can be made by astute investors under all trading conditions.

Low or negative interest rates can offer incentive to buy the precious metal and it offers an alternative to currencies when volatility is high.

Gold is unique in that it does not carry a credit risk. It is not a liability in any person or firm’s accounts and it is freely traded 24 hours a day around the world. The market is very deep as there is a huge range of buyers- governments, jewellers, computer manufacturers, dentists etc.

Gold pricing and markets

The spot price of gold is driven by demand and supply and the usual benchmark is the twice daily London Gold Fixing where members of the largest bullion-trading firms are in communication and set a price. The main action then takes place based on the intra day spot price around the world over an entire 24 hour period as national markets open –trade- then close. The largest are in New York, London and Zurich.

Special factors influencing the price of gold:

o    Hoarding.  Because the vast amount of gold mined throughout history still exists, huge amounts are kept in secure places around the world. At the “right” price large amounts can instantly be released onto the market giving a downside risk for investors  

o    Central banks and the International Monetary Fund.  They have great influence on the price of gold as they hold a high proportion of the world’s above-ground gold stock as official reserves. There are international agreements about the level of gold sales but there are still considerable fluctuations. In recent years the UK has been a major seller while Russia has sought to increase its gold reserves. 

o    Timescale.  Gold is not subject to the normal dictates of demand and supply. Because gold is instantly available and does not have to be produced to meet buying orders, prices can fluctuate dramatically producing a volatile market. 

In spite of, or perhaps because of, the market’s volatility investing in gold can be a lucrative opportunity.