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Investment or investing is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. Investment is the choice by the individual to risk his savings with the hope of gain. Rather than store the good produced, or its money equivalent, the investor chooses to use that good either to create a durable consumer or producer good, or to lend the original saved good to another in exchange for either interest or a share of the profits.
INVESTMENT IN GOLD :
Gold Price :
The usual benchmark for the price of gold is known as the London Gold Fixing, a twicedaily (telephone) meeting of representatives from five bullion-trading firms. Furthermore, there is active gold trading based on the intra-day spot price, derived from gold-trading markets around the world as they open and close throughout the day.
Factors Influencing Gold Price :
Today, like all investments and commodities, the price of gold is ultimately driven by supply and demand, including hoarding and disposal. Unlike most other commodities, the hoarding and disposal plays a much bigger role in affecting the price, because most of the gold ever mined still exists and is potentially able to come on to the market for the right price. Given the huge quantity of hoarded gold, compared to the annual production, the price of gold is mainly affected by changes in sentiment, rather than changes in annual production In general, gold becomes more desirable in times of: Bank failures : When dollars were fully convertible into gold, both were regarded as money. However, most people preferred to carry around paper banknotes rather than the somewhat heavier and less divisible gold coins. If people feared their bank would
fail, a bank run might have been the result. This is what happened in the USA during the Great Depression of the 1930s, leading President Roosevelt to impose a national emergency and to outlaw the holding of gold by US citizens, known as Executive Order 6102 which has since been ended. Low or negative real interest rates : If the return on bonds, equities and real estate is not adequately compensating for risk and inflation then the demand for gold and other alternative investments such as commodities increases. An example of this is the period of Stagflation that occurred during the 1970s and which led to an economic bubble forming in precious metals. War, invasion, looting, crisis : In times of national crisis, people fear that their assets may be seized and that the currency may become worthless. They see gold as a solid asset which will always buy food or transportation. Thus in times of great uncertainty, particularly when war is feared, the demand for gold rises.
Types Of Gold Investor :
Investors may buy gold for a variety of reasons: among them include a desire to diversify their assets; to hide wealth from tax authorities; for reasons of political belief; or out of fear of an economic depression or other serious crisis.
Methods Of Investing In Gold
Investment in gold can be done directly through bullion ownership, or indirectly through certificates, accounts, spread betting, derivatives or shares.
Gold Versus Stocks :
The ratio of the Dow Jones Industrial Average index divided by the price of an ounce of gold. A surrogate index was used to generate all points before 1897. The performance of gold bullion is often compared to stocks. They are fundamentally different asset classes: gold is a store of value whereas stocks are a return on value (i.e. growth plus dividends). Stocks and bonds perform best in a stable political climate with strong property rights
and little turmoil. Since 1800, stocks have consistently gained value in comparison to gold due in part to the stability of the American political system. This appreciation has been cyclical with long periods of stock outperformance followed by long periods of gold outperformance. The Dow Industrials bottomed out a ratio of 1:1 with gold during 1980 (the end of the 1970s bear market) and proceeded to post gains throughout the 1980s and 1990s. The ratio peaked on January 14th, 2000 a value of 41.3 and has fallen sharply since. William Anton III wrote in the 2004 issue of Jefferson Coin and Bullion "...downward movement in the Dow/gold ratio is unlikely to stop precisely at the mean trendline. The extreme distension of the the 90s will likely overshoot to the opposite extreme in the current cycle." In November 2005, Rick Munarriz of Motley Fool.com posed the question of which represented a better investment: a share of Google or an ounce of gold. The specific comparison between these two very different investments seems to have captured the imagination of many in the investment community and is serving to crystalize the broader debate. At the time of writing, a share of Google's stock and an ounce of gold were both near $700. On January 4, 2008 23:58 New York Time, it was reported that an ounce of gold outpaced the share price of Google by 30.77%, with gold closing at $859.19 per ounce and a share of Google closing at $657 on U.S. market exchanges. On January 24th 2008, the gold price broke the $900 mark per ounce for the first time. The price of gold topped $1,000 an ounce for the first time ever on March 13, 2008 amid recession fears in the United States. On September 21, 2008 gold closed at $862 per ounce.
Technical Analysis :
As with stocks, gold investors may base their investment decision partly on, or solely on, technical analysis. Typically, this involves analyzing chart patterns, moving averages, market trends and/or the economic cycle in order to speculate on the future price.
Using Leverage :
Bullish investors may choose to leverage their position by borrowing money against their existing gold assets and then purchasing more gold on account with the loaned funds. In order to keep the cost of debt to a minimum, these individuals would normally seek a loan in the currency with the lowest borrowing rate, which, as of April 2006, was the Japanese yen. This technique is referred to as a "yen-gold carry trade". Leverage is also an integral part of buying gold derivatives and unhedged gold mining company shares (see gold mining companies). Leverage via carry trades or derivatives may increase investment
gains but also increases risk, as if the gold price decreases, the investor may be subject to a margin call. In 2008, ETF Securities launched ETFS Leveraged Gold (LSE: LBUL) which is designed to change each day by twice the daily percentage change in the DJ-AIG Gold Sub-Index (before fees and adjustments). Therefore if the DJ-AIG Gold Sub-Index rises (or falls) by 1% in one day, then ETFS Leveraged Gold will rise (or fall) by 2%.
Gold's Value Versus Money Supply
For many years, the dollar was defined as a fixed weight in gold and silver gold standard. Gold is money, and in past societies used as currency. Paper money was in many parts of the world used as notional representation of gold, with the ability to demand payment of the gold. Since the gold standard was ended on August 15, 1971, an event called the Nixon Shock or Dollar Shock, governments formerly tied to the Bretton Woods Agreement have been free to increase money supply without limitation. The currencies became "fiat" not linked to or representing a claim on gold or anything else. Increases in the supply of fiat currency through increased money supply have caused the fiat currency price of gold to increase. This is because fiat currencies can increase in supply much more quickly than new gold can be brought onto the market. Increases in the supply of fiat currency through increased money supply have caused the fiat currency price of gold to increase. This is because fiat currencies can increase in supply much more quickly than new gold can be brought onto the market.
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