Conspiracy theories, government intervention, international secret cabals, transmutation, mystical powers—no, this isn’t the X-Files movie. Welcome to investing in gold.
The emotional aspects of gold are something we are exposed to from a very young age. Gold is everywhere: our parents’ wedding rings, pirate treasure, chocolate “gold” coins, royal artifacts, glittering fillings in rap videos… It’s that deep cultural importance of gold that makes gold an anomaly in the world of commodity investing.
While many commodities are affected by more than just supply and demand, the price of gold drifts farthest from that balance. For example, gold has played a role in currency going back to the earliest recorded civilizations. Today is no different, with governments and central banks holding gold as a store of value to support their currencies. Speculators spend a lot of time thinking about the role of these agencies and their manipulation of the price of gold.
Of course, gold is also affected by supply and demand. It is estimated the Indian public holds more than 13,000 tonnes of gold. As the economies in India, China, and other countries continue to develop, the demand for gold jewelry will continue to increase. Gold is also used in electronics. While the majority of gold produced is used in jewelry, it is estimated that up to 20% of production goes into the manufacture of electronics.
The exact reasons are difficult to pin down, but gold is worth more US dollars now than at any other time in history. The US dollar has been declining, but gold is also at all-time highs in Japanese yen, British pounds and euros. Another big part of the story is that gold is not at all-time highs when its historical prices are adjusted for inflation. When gold hit $850 per ounce in January 1980, gold was worth almost $2,400 current dollars. Many look at this number and say gold has a lot of potential to rise even beyond current record prices.
