Gold is highly sought after, not just for investment purposes and to make jewellery but also for use in the manufacturing of certain electronic and medical devices. In addition, there are external factors like market conditions and gold supply that impact the precious metal's price. Let's look more specifically at what drives the price of gold.
Understanding investing in gold
what drives the price of gold, let's get to know the asset a little bit more first. Gold has long been considered a robust and reliable investment, often seen as a haven during times of economic uncertainty. Unlike stocks and bonds, gold is a tangible asset that people can feel, touch, and actually use.
One of the key advantages of investing in gold is its liquidity. Gold is universally recognized and can be easily bought or sold in various forms such as coins, bars, and jewelry. There are also many such as the SPDR Gold Shares (GLD) that let investors buy and sell gold without ever having to physically own the actual precious metal.
Moreover, gold can serve as a strategic asset in an investment portfolio due to its low correlation with other asset classes like stocks and bonds. According to the World Gold Council, gold's movement is often correlated with the stock market during "risk-on" periods and not correlated to periods of market stress. Note that the correlation between two assets can change over time, and the World Gold Council's claim is as of September 2024.
What makes gold so valuable
The value of gold is rooted in the history of human civilization, as the metal has remained a symbol of wealth for thousands of years. The value of gold ultimately stems from a social construction, based on the agreement that gold has been valuable in the past and will remain valuable in the future. In addition, gold’s attractiveness revolves around its capacity to maintain its value over time and its uses in jewelry and technological products.