Here are a few Q and A's you may want to know.
Q1:Why do people buy gold?
Gold is been long regarded as a safe-haven for an economic downturn or crisis when people lose confidence in equities and paper money. This is because gold does not lose much of its real value in most of the situations. Furthermore, trading gold involves only a small spread as small as 2.8 % which is attractive. Gold is highly demanded and almost anyone would want to buy gold and even have ready quoted prices for buying gold. Thus, there's little risk for holding it.
Q2: Can people really profit from buying gold?
Yes of course. Gold would be regarded as a conservative investment as people always turn to it many economic situations and demand for gold is strong from emerging countries. Gold can be quite volatile and thus if you have the foresight, you could easily make some good money.
Q3 :What affects the price of gold?
I would say three factors. The US Dollar, inflation rate and the Dow Jones Industrial Average (DJIA). It's simple economics actually and makes common sense. When the US Dollar appreciates, people gain confidence in the dollar and would demand less of gold and thus its price would fall, vice-versa. Gold has also been called the "inflation" hedge. When inflation rates are high and paper money is losing its value, people turn to gold to conserve their wealth. Thus, inflation pushes gold prices up. And example is when crude oil prices rises indicating inflation, people normally turn to gold and thus these two commodities may be seen rising and falling together. This however does not always happen.The DJIA is the equity index in the US and this is also very similar. Confidence lost in the equity market, people jump to gold or cash. Of course, when money market rates are low and inflation is eroding paper money's value, gold is the option. Hence, gold rises.
Q4: You previously said when people lose confidence in equity, they jump to gold. Everything from commodities to stocks are tumbling now? How can this be right?
The credit crisis at the moment is worse then anyone could have expected and the lack of credit in markets are forcing people to liquidate anything they have. When the bailout bill was tabled, gold soared at a record overnight level because people feared for the collapse in equities and jumped into gold as safe-haven. Now, the situation is worse than expected causing central banks to bring down rates and governments to pump in money into the economy, thats how bad it is. Now, people are even selling gold to get cash. The huge sell-off is causing the huge drop in gold.
Q5: How much is gold's real value?
This should NOT be the main reason people should buy gold. But estimates based on the increase in money supply (M3) in the economy over the years, gold is worth ($20,000) compared to $ 700 now. But this is based on that measurement and it is quite impossible that sort of amount will be reached. However, this goes to show the amount money increasingly printed.
Q6: Will the price of gold go up?
The amount of money injected by governments into the economy would suggest inflation will have its place in the near future, and gold comes in again as the "inflation hedge" and a rise could happen. However, if the slowdown persist and demand is still slow, gold will not rise and we could be headed for some trouble.
Q7: Will gold match its $1000/oz record ?
Personally, the situation is terrible and I had many predictions gone wrong so I wouldn't give a yes or no. What I would say is by 2009 January , 900/oz.
Q8: Can I invest in gold by buying jewelery?
The term investing involves returns and gold does not pay any form of dividends or interest for holding it. You only make by trading. Jewelery prices are at 30% above market price for gold obviously for its premium in design and workmanship. Thus, investing by jewelery is out of the topic. People do invest by buying gold coins and bars can be easily traded with bullion dealers and banks.
Q9 : How about other metals such as silver and platinum?
I have not much knowledge about the two metals and I cannot make a fair judgment. But the fact is both of them has lost more than half of its value in the past year from their record highs and gold only lost about 20%. I hope I don't have to spell out which metal is in demand.
Here are some numbers based on 1 year
Silver : High $ 20, now 8.90, change : -55.5%
Platinum : High $ 2252 , now 798 , change : -64.6%
Gold : High $1002 , now 735, change : -26.5%
Q10: How do I track gold prices?
Most of the financial websites do quote the prices. Bloomberg, Yahoo Finance, Kitco are examples.
~deyao~
