Tuesday, August 21, 2012

Guest Post: Analyzing Gold Price Trends

Gold as an investment opportunity is something that has to be read in a completely different way than most other investments. Normal stocks and commodities can be looked at through long-term trends and financial forecasts based on a number of different factors. Changes in the values of these stocks can be predicted based on the success of different industries and companies, etc. Gold, on the other hand, is not typically prone to sudden drops or rises in value, and thus needs to be predicted and analyzed in different ways.

The first thing to note is that the term “gold investment” typically refers to the purchase of gold bullion at sites like bullionvault.com. However, gold mining companies can sometimes be traded, and work a bit more like ordinary stocks. Gold bullion is an existing commodity rather than an active company, and its price depends more on its relation to greater financial markets and currencies than on its own production. With that in mind, here are a few factors that can help you to recognize potential trends in gold prices.

To begin with, production has minimal impact on trends in gold prices. While gold is still mined all over the world, the enormous majority of gold in circulation has already been mined, meaning that the impact of what little proportional amount is mined in a given month or year is very small. This is a very important detail that differentiates gold from traditional stocks. If you happen to read about gold mining and expect any spike in gold prices, you should always remember that most gold is already in circulation, both in its simplest form (raw gold bullion) and as jewelry or decoration.

On the other hand, the production of and the strength of currencies in major economic systems do strongly impact the price of gold. Gold does not “belong” to any single financial system, nor is it directly responsible for backing the currency in these systems as was once the case. However, because gold is a valuable commodity and can be purchased freely at any time, it does often serve people as a sort of buffer against financial uncertainty, and when more people are taking advantage of this idea, the price of gold can rise.

Essentially, as economies around the world weaken and their currencies become devalued, people begin to worry about their wealth losing its value. It is in these situations that some people choose to purchase gold as a more stable alternative to actual currency. Of course, this is actually very complicated, particularly when the European and American economies are not fluctuating in sync, but in general strong economies mean lower gold prices, and weaker ones lead to higher prices.

This is a Bullionvault guest post, written by freelancer Mark Sanderson.