The current price of gold is at an almost
unprecedented high. In fact, the average price in 2011 is lower than only the
price attained in 1980 in real terms.
Like most commodity
prices, gold price experiences significant fluctuations. And as with all traded
commodities, the price is determined by supply and demand. Shifts in supply
arise mainly from new gold deposits in the various mines across the world. A
major and fluctuating factor in demand for gold is the need for safe
investment.
This means that the
demand for gold tend to increase when the real rate of return on alternative
investments falls. This usually occurs in periods when either the yield on
benchmark securities (for example, the US treasury bonds or bill) falls
significantly or when there are expectations of higher inflation.
For example, the high
gold prices of the 1970s and early 1980s coincided with one of the highest
global inflation period. During such periods, smaller shares of gold tend to be
put to end uses such as jewelry and industry.
Read more about Gold and Gold recycling
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