Price Of Gold - Demand for Gold


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.
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