Gold has been in a bull market for a while now but a permanent bull market is impossible. If gold has risen consistently since the days of the Pharaohs, it’s price would be infinite. It would be thee most expensive thing in the world that no one would be able to buy it. So, the gold price has risen and fallen over the years. It actually fluctuates a lot on a daily.
The price of gold has risen quite a lot in last decade thanks to central bank money printing policies. There might be a lot of gold mines still around but not all that they produce is that great. Over the years, technology has improved making it possible to get more of the low concentration of gold from the earth. However, the reality is that for one part of gold for every 300,000 tons of ore is worth mining, the rest is worthless.
Gold is a commodity that is not secure for speculative investors. No sane investor would buy physical gold in the hope that the gold price will quadruple in the next year. Gold is mostly a defensive investment. It is used to guard against things like inflation, currency devaluation and other problems.
Unlike other commodities such as crude oil, cotton, ethanol, etc – precious metals like gold aren’t consumed. Only about 10% of gold is used in industrial applications and the rest goes into jewellery making and into bullion bars and coins. Simply put, the supply is static.
The gold mining industry has been talking about production peaking at the turn of the millennium and that supply will continue to fall. This indeed seems to be the case and in response the gold price has been steadily rising.
So, if supply is mostly static what drives the price of gold to rise and fall. According to classical economic theory, the increase in the supply would be due to the bear market. We could blame it for the sudden fall of gold or we could blame it on the decrease in demand bit the biggest reason for the rise and fall of the gold price is speculation. This involves trying to predict what the central banks and governments are likely to do and acting pre-emptively. Gold’s has been linked with the U.S Federal Reserve stopping it stimulus program in recent times. Add the influence of inflation dropping.
In the90s the price of gold hovered around $250 an ounce, people who were patient and held on to their gold through wars, terrorism, recession and other global problems have lived to see their investment grow. They are probably still holding on to their gold considering that global economic and political upheavals are now the norm.
It might be tempting to want to believe that gold is an unswayable store of wealth given the role it has played through history but it isn’t. The value of gold rises and drops just like everything else. Gold might never lose and gain value as rapidly as penny stock or Bitcoin, its price movement still conveys information bout investor confidence, the probability of currency to lose or gain value, et. A wise investor recognises the place of gold in the financial market without needing to attach too much significance to it.
