For thousands of years, gold has been valued as a global currency, a commodity, an investment and simply an object of beauty. Investment in gold can be done directly through gold coin and small bars, bullion ownership, or indirectly through certificates, accounts, spread betting, derivatives or shares of gold orientated funds.
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.
Gold is a monetary metal whose price is determined by inflation, by fluctuations in the dollar and U.S. stocks, by currency-related crises, interest rate volatility and international tensions, and by increases or decreases in the prices of other commodities.
The price of gold reacts to supply and demand changes and can be influenced by consumer spending and overall levels of affluence. 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.
The usual benchmark for the price of gold is known as the London Gold Fixing, a twice-daily (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.
Generally the cheapest ways to buy gold are bars, Krugerrands or sovereigns. Of these three options, gold bars can usually be bought for the lowest percentage premium over gold, followed by Krugerrands then gold sovereigns. Most other gold coins are more expensive, and therefore better avoided, at least by serious gold investors.
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