GOLDGold, a precious metal has been taken as a store value since ages. Gold is also taken to be a complicated asset where few people refuse to accept it in the form of money. It is free market money (James Turk, March 2008) which is circulated by legal tender laws. It is generally accepted as a commodity in the ornament industry rather than an important element of the industrial growth and relevance, its monetary value which is the prime source of manipulations and speculation is completed overlooked. Its economic importance is well represented by the fact that the prices of the crude oil are measured in terms of gold to sustain a consistent and stable purchasing power for coming years.
People have owned gold in various forms such as mutual funds or stocks in the mining company; it offers the advantage of diversifying portfolio risk to the investors. The demand and supply of gold in the current year, 2008 has wavered due to many reasons such as the stock of gold held, stock of the national currency, demand of gold in the market and demand of currency in the market.
However, Due to the increasing factors such as inflationary conditions and the staggering market conditions, a global credit crunch in the market for the demand of Gold has been affected worldwide, for instance the dollar demand for gold had reached to almost US $20.9bn in the first quarter of the year, nearly double of the past four years of pricing. The steep rise in the gold prices, which touched $1,000/oz in mid march, was the main cause of fall in its demand since 1990’s.
A drastic fall of 35% in the Net retail investment of gold and a decline of 21% in demand was observed in the jewellery segment in the year 2008.Other factors such as the unsteadiness in the equity share market, the flux in the dollar and mounting inflation have effected the demand fluctuations in the gold investments in the current year. The fall in the dollar price has severely affected the functioning of the global financial system resulting in 20% rise in the gold prices. The gold mining shares are stuck in the equity market resulting in the higher pricing of other commodities.
The speculation has been triggered in gold buying who perceive the financing function as a major dilemma in the coming future trends. People who prefer risk aversion have opted to buy GDX and sell gold as investors hunt for the different ways to safeguard themselves from the rapidly aggravating inflationary conditions. Disposing and hoarding of gold plays a very crucial role in its pricing strategies, the huge amount of gold which was hoarded earlier, still has the capacity to be sold in the market at fair price.
The quantity of hoarded gold in comparison to the real production of gold is affected by the various perception and emotional changes undertaken by the people at different circumstances. One of the main determinants of demand and supply in a market is the ‘Price’, but surprisingly the rising prices of gold did not affects its demand during the initial quarter of 2008 instead its supply graph went up 620 tones, which clearly indicated that the demand curve for gold’s price rose simultaneously with the rise in its demand.