Gold prices fluctuate wildly. As of this writing (mid 2010), gold prices are soaring (selling at about 1100 USD per ounce). Of course, this is prompting many to consider investing in gold. However, before you make that leap, you should know a little something about how gold prices are determined.
Because gold has long been recognized as a strong, versatile metal, it also has long been recognized as the world’s monetary standard. Thus, when economic times appear to be heading toward a crisis, people tend to buy more gold to have as a safety net. Naturally, as the gold is bought up, it is harder to get, thus the price of gold rises. When times improve, people begin selling off their gold for other things they need, thus the price of gold reduces.
Because of the importance of gold in trade, several central banks and other organizations hold some of its gold in reserves, in order to have at least some control over gold pricing and thus the world economy. The banks and the International Monetary Fund (IMF) meet regularly to set limits for gold sales. These limits are based on current economic conditions and other global factors.
Of course, there is also gold being mined today. It is currently estimated that 2500 tons of gold are mined each year, most of it is used in jewelry, dentistry and industry, the rest goes to investors as gold bars, bullion and coins as well as in exchange traded funds.
Many investors like to compare gold prices against stock price because gold is a way to store value while stocks are a way to increase value. Thus in difficult economic times, gold tends to increase in value compared to stocks and in better times, stocks gain favor.
So what about now? Currently (mid-2010) gold appears to be gaining rapidly: In December 2005, it reached a price of $500-per-ounce. In March 2008, that price reached $1,000 for the first time in history. Note that this occurred as rumors of a recession were widely heard. Today the price of gold hovers at about $1100 per ounce. Many experts predict that gold prices will be very volatile for the rest of the year. The price could continue to soar or it could plummet drastically depending on world events.
Before taking the plunge to invest in gold or in anything else, it pays to be well informed. First, take a look at your current financial status. How much money can you risk in investing? If you lost that amount, would you and your family be safe? What are your goals – education, retirement, travel, business? What is the current economic and political climate – does it seem to be stabilizing or is does it seem uncertain? How have gold prices fluctuated over the past six months or so?
Gold is generally considered to be among the safest investment tools, but it is by no means certain. Make sure you know what you are doing before you are captured by the allure of the world’s most precious metal.