Figuring out movements in gold prices is never an easy task.
One of the things that complicates the pressure on price movements is the unique attribute of gold as a personal possession.
Frank Holmes, CEO of U.S. Global Investors, talks about two different types of trade in gold.
First, there is the fear trade. This is when people buy gold because they fear for the safety of the wealth they own in the form of currencies, stocks and bonds. When it looks like the economy is spiralling out of control, fear drives the price of gold up. Everyone wants to buy some.
Love trade is something entirely different, and unique to gold.
We buy gold in the form of jewelry and give it to the ones we love. This is particularly true in countries like India, where huge volumes of gold are used to make jewelry.
What is so different about buying gold in the form of jewelry in India, is that the price of gold jewelry is typically only about 10% over the spot price of the pure gold itself.
Here is North America, jewelry stores typically price gold jewelry at about 400% the spot price of the gold.
In other words, you get a lot more gold for your money in India, and buying jewelry there is not so very different from buying gold bullion here.
Anyway, according to Frank Holmes, almost 60% of gold buying worldwide is driven by love trade, not fear trade.
The love trade factor is unique to gold, and goes some way to explaining why it is so hard to predict gold price movements when you view it simply as a commodity.
For owners of gold, anywhere, it’s also reassuring to know that even when gold prices are under downward pressure through a lull in fear trade, there will always be some supporting and upward pressure from the love trade.
Bottom line…there is lots to love about gold.
You can buy gold bars and coins online at APMEX.
Photo credit: mumbailocal.net
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