Selected Bullion Investment Products: Gold

 

Introduction

 

Gold is a chemical element with the symbol Au (from Latin: aurum “gold”) and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. In fact, it is the most malleable and ductile of all metals; a single gram can be beaten into a sheet of 1 square meter, or an ounce into 300 square feet. Gold leaf can be beaten thin enough to become translucent. Gold has been a valuable and highly sought-after precious metal for coinage, jewelry, and other arts since long before the beginning of recorded history. Gold standards have been the most common basis for monetary policies throughout human history, being widely supplanted by fiat currency only in the late 20th century. As of 2009, a total of 165,000 tonnes of gold have been mined. This is roughly equivalent to 5.3 billion troy ounces, which would form a cube measuring 66ft on one side. The world consumption of new gold produced is about 50% in jewelry, 40% in investments, and 10% in industry.

 

Gold Chart 

Pure gold has a bright yellow color and luster, which it maintains faithfully without oxidizing in air or water. Common colored gold alloys such as white goldand rose gold can be created by the addition of various amounts of copper and silver, as indicated in the ternary plot shown at right. Alloys containing palladium or nickel are also important in commercial jewelry for the production of white gold.

 

Gold as an Investment

 

 

Of all the precious metals, gold has been the most popular investment by far. Gold is a monetary metal whose price is determined by inflation, by fluctuations in the dollar and U.S. stocks, by currency-related crises, interest-rate volatility, international tensions, and by increases or decreases in the prices of other commodities. Like other precious metals, the price of gold reacts to supply-and-demand changes and can be influenced by consumer spending and overall levels of affluence. However, unlike most other commodities, saving and disposal plays a larger role in determining its value than does its consumption. Most of the gold ever mined still exists in accessible form, such as bullion and jewelry—thus potentially able to come back onto the gold market for the right price. Given the huge quantity of gold stored above-ground compared to the annual production, the price of gold is mainly affected by changes in sentiment (demand), rather than changes in annual production (supply). From 2001 to 2011, Gold increased in value from $270 an ounce to a high of $1900 per ounce, an increase of nearly 500% in 10 years. That’s an average annual interest rate of 50%. Very few traditional investments in the past decade have even come close to matching this level of annual growth. By 2015, gold prices have corrected to under $1300, which potentially represents a great buying opportunity. Best of all, many mainstream market analysts are predicting significant gains in the gold market long-term, with estimates as high as $3,000 to $5,000 per ounce by 2018.