Web Desk: Jewellery has been an integral part of human adornment, especially women love buying and wearing it. From earring, nose pins, bracelets, neck pieces and to mathapati, women prefer having gold jewellery because of its metallic properties.
Unlike paper currency, coins or other assets, gold has maintained its value throughout the ages.
Beside this, gold is being used in making coins, utensils, crockery etc. It is also used in the field of cosmetics, medicines, electronics, aerospace, glass-making.
But have you ever though how the price of gold increase or decrease on regular basis? Here are some of the reasons.
Gold has been an excellent hedge against inflation. Its price increase with the increase in the cost of living.
Deflation, a period in which prices decrease. When the business activity slows and the economy is burdened by excessive debt, the price of gold dropped sharply.
The value to gold sustains in times of financial uncertainty, as well as geopolitical uncertainty. During such crises, when world tension rise, people flee to its relative safety. Gold’s price often rises the most when confidence in governments is low.
Reduction in the supply of gold increases gold price. When the sales of gold bullion from the vaults of global central banks slowed and the production of new gold from mines had been decline, the prices of gold hit because bringing a new mine into production take five to ten years.
In times when foreign exchange reserves are large, and the economy is humming along, a central bank will actually want to reduce the amount of gold it holds. That’s because the gold is a dead asset – unlike bonds, or even money in a deposit account, it generates no return.
Increment in wealth boosts demand for gold. The demand for gold has been steadfast in countries like India and China because there is a traditional form of saving it.
Demands for gold has also grown among investors.
The bottom line
Gold should be an important part of a diversified investment portfolio because its price increases in response to events that cause the value of paper investments, such as stocks and bonds, to decline.