The main purchasers of gold today are investors; while it is true that gold is much in demand to make jewelry this is secondary as high prices and poor economic conditions are deterring consumers from splurging on high-priced jewelry. The question is why are investors buying gold so heavily and especially at a time when investments elsewhere such as real estate and stocks are taking such a beating?
The answer is wrapped up in our financial system and the global economy actually works , so this article will seek to explain in laymen’s terms a very complex financial structure which has underpinned economies worldwide for the entirety of modern society’s existence.
Gold was sought after in early times because of its beauty and rarity; when coins were first minted, the value of a coin was the value of the gold it contained. For instance, the pirate phrase, “Pieces of Eight”, comes from the Spanish gold coins which pirates were in the habit of “acquiring”. As any self-respecting pirate would engage in drinking a bottle of rum or two after time at sea, the value of the Spanish gold coin was far in excess of the average pirate’s bar tab – they would break the coin into eight pieces and use this small change to settle their tab.
As economies developed and paper money was issued, the value of a monetary note or bill was backed by an equivalent amount of gold bullion. The dollar bill in your hand was backed by a dollar’s worth of gold held at Fort Knox or elsewhere, and this backed the currency. This was known as the Gold Standard and was established shortly before the end of the Second World War in the Bretton Woods Agreement.
As time went on, the amount of gold required to back the currency dwindled, so less gold was stored to back the paper currency in circulation. When a recession occurred, savvy investors would move their investments from stocks and cash deposits into gold investments because gold was and is viewed as a safe haven for the value they have accumulated. This practice continues to this day especially as the value of paper currency has been completely decoupled from gold reserves so in effect there is nothing except the promise of the US Government to back the value of the paper bills the Treasury Department issues.
Whenever economic times grow hard, more investors fly to gold as an investment which in turn drives the price of gold up. A couple of years ago, you could buy gold for around $330 an ounce but today, at the height of the recession in 2009, you will not find gold for less than $900 an ounce (and for a brief time it was over $1,000 an ounce).
This is why selling your old gold, especially in the form of old jewelry, is such a good move – you are raising cash for your tightened budgets and getting absolutely top dollar for the gold you have. Although it is a seller's market, the minute the recovery starts investors will dump their gold into the market. Supply will outweigh demand and the price of gold will drop dramatically and very fast. This is why pundits are recommending that for the owner of small amounts of gold, now is the very best time to sell it as you are not likely to get a better price in the future unless the economy takes another nose dive.
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