In the 1850s, there was the California Gold Rush, where prospectors retrieved the gold from riverbeds and streams through panning. Nowadays, investors have come a long way since the 1850s, and you no longer have to sail to California in steamships to get gold dust. Instead, you can invest in gold bars and jewelry from different companies and include them in your portfolio. You can read more about the events in the 1850s at this link: https://en.wikipedia.org/wiki/California_Gold_Rush.
Many precious metals, especially gold, are considered valuable today because of their luster and malleability. It is used in early coins and jewelry, and it is mined out of the earth. Many believed that the more difficult to obtain something, the higher its value should be.
As time goes by, humans facilitate trade through precious metals, storing them to accumulate wealth. In fact, the early paper currencies were backed by precious metals, where the printed bill is equal to bullion kept in a vault where it can be exchanged. But the approach did not make it to the 21st century, and the relationship between fiat money and precious metals is long gone. However, many people are still fascinated with the glint of this yellow metal.
Where is the Demand Coming From?
The industry's greatest demand for the precious yellow metal is still in making jewelry. Others may include physical investments such as bars, medals, bullion, and coins. A bullion is a bar that has a stamp on it stating the purity of the metal. This is different from collectibles or numismatic coins that are priced and traded based on their demand rather than their gold content.
Some investors in physical bullions may include central banks, individuals, and ETFs that purchase the metals on others' behalf. Investors may view gold as a hedge against inflation and is considered a "safe haven" to park their money when things do not go well.
If a country's paper money suddenly loses its value, the whole world will need to fall back on something that will facilitate the trend. This is one of the reasons why the prices become higher when many find the stock market to be volatile.
Another thing is that since gold is a conductor of electricity, it is always used in electrical plants. Other uses may include technological innovations, gadgets, heat shields, dentistry, and more.
How is the Price Determined?
Gold is currently considered a commodity, and it is traded based on the current demand and the overall supply available. Get to know the prices by reaching out to legitimate companies out there. You can learn more about reviews of these companies and other options to whom you will entrust your investment. The changes and interplays regarding supply and demand determine the spot price of gold at any given time or day.
Know that the demand for necklaces, rings, and bracelets is constant. However, if an economic crisis happens, this can temporarily reduce the need for jewelry. The surge of demand from central banks and individual investors may inversely track the economy. When people begin to worry, they often buy more gold, and because of the sudden increase, the prices will go higher.
How Much Gold is Present on Earth?
The precious metals are plentiful, but it is challenging to get them out from the ground. Some parts of the sea may contain these yellow glinting metals, but they are in very minute quantities that it would cost a lot more to extract than what they are worth. The point is that there is a big difference between what is available and the amount of gold present on earth.
The estimates may be around 190,000 metric tons that are present above ground, and only about 54,000 metric tons can be economically extracted from the mines with the help of the current technologies. Some may have advances in extraction methods, and they may be able to get more than what is currently estimated. Some were discovered near the thermal vents under the sea, but they might be worth it if the price becomes higher.
In the past, panning was a popular way to obtain precious metal during the California Gold Rush. However, miners today may find copper and silver to be more valuable, and for some, gold is just a by-product of their efforts in mining.
How Do Precious Metals Hold During Economic Downturns?
The answer will depend on how you invested in the precious metals and how much. Some telling examples were episodes during the economic recession from 2007 to 2009. The prices were relative to the stocks and bonds during a bear market.
Between the dates November 2007 and June 2009, the S&P 500 index fell by about 36%. On the other hand, the prices of gold bars and coins rose by about 35%. This is the most recent example of the prolonged downturn in stocks, but this can be a dramatic one because these are very genuine concerns about the viability of the global financial system. When there's turmoil, many investors seek safe-haven investments.
About the Bars, Bullions, and Coins
Some of the best options in owning physical gold are to buy it in the form of coins, bars, and bullion. The money that is often needed to mint new coins is usually passed to the customer's end. Also, many dealers will add mark-up prices for compensation because they acted as a middleman. It is best if you could buy directly from the US Mint, so you are sure that you are transacting with reputable dealers.
Another thing is that know that you need to store the bullion after purchasing them. This may mean that you need to rent a safe deposit box from a local depository or bank. This means that you will be paying with the ongoing storage costs, and you will not get dividends every year.
Selling may mean that you may have to accept transactions from dealers who are only willing to buy if you offer below the current spot price. It's best if you could research the investments first and look for reputable companies that can help you before you invest your hard-earned money in gold.