The precious metals market is as volatile as they come as it influenced by a number of factors. With gold prices taking a slump of almost $500 in the last year, investors must be wondering whether it is worth purchasing the yellow metal.
The reason for gold´s current downturn is mostly due to the improving global economy. Gold is generally used as a hedge against assets, especially in times of economic uncertainty. It is therefore a natural chain of events for gold prices drop now that currency is strengthening.
After the Federal Reserve announced its intention to cut the quantitative easing program in July, there was a flurry of gold selling with several billionaires and investment banks cashing in on their stocks. They knew gold prices were going to drop further and saw better opportunities for investment.
Indeed traders are turning their attention to equities and bonds at present, but globally, the main driver behind gold prices is jewellery. The World Gold Council estimate that since gold mining began in antiquity, around 171,000 tonnes has been used to fashion jewellery.
In contrast, only 1,535 tonnes of gold was used to make bullion and coins last year despite some 4,383 tonnes of the yellow metal being mined. The 2013 figures for jewellery on the other hand accounts for 1,896 tonnes.
Jewllery manufacture outstripped other uses of precious metals even despite the Indian government putting sanctions on gold imports which restricted the amount of gold in India, the biggest consumer of gold, particularly as it is the preferred dowry for soon-to-be-married couples.
The middle-classes in India and China also prefer to secure their financial future in gold and the demand in the Far East last year saw significant rises and at one point was propping gold prices up despite the adversity of the US Federal Reserve´s electronic money printing program.
Gold is also highly in demand in industry, particularly technology as the yellow metal is used as a semi-conductor for devices such as smartphones, tablets and laptops etc. Gold is also used for various other mass-production merchandise such as solar heating panels, false teeth and anti-cancer drugs.
Great time to buy gold
With the current surge of the global economy, it would appear that gold prices will remain low for quite some time, which gives casual investors plenty of time to build on their investment portfolio and accrue a reasonable amount of gold bullion at low prices.
For long-term investors, gold is an excellent option as precious metals always recover in times of financial stress. The economy will collapse again and gold prices will rise sharply, enabling savvy investors who buy their gold now to make a handsome profit.
The best gold bullion to invest in is gold coins as they contain the highest percentage of gold and features unique designs so will fetch more when the time comes to sell. Jewellery on the other hand, will yield the lowest returns as they lose value quickly and only have around 70 per cent gold content.
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