Gold has always been traded. Throughout the centuries it has been the most popular of the precious metals – both for investment and trading purposes. It has also been bought as a hedge when there is an economic crisis brought on by war, civil unrest, high inflation or national debt. As governments seek to rescue their economies by pumping in money, the value of their currencies deflate. It is at times like these that gold becomes particularly desirable. Of course, the reverse is true and once economic crises ease, the demand for gold falls. Indeed, like all commodities, its value fluctuates. It often seems to follow the value of crude oil, in fact, often mirroring oil’s up and down turns. However, here its similarity to other commodities such as forms of energy, other metals or agricultural products ends, because as a physical entity gold is not consumed or much used for practical purposes but saved or sold. Consequently, most of the gold ever mined is still in existence, either as jewellery or as gold bullion and weighing around 160,000 tonnes. A further estimated 2,500 tonnes are mined every year, according to the World Gold Council. Four fifths of this is used for jewellery, with India being the biggest consumer, or in industry or medical and dental practices. The remaining fifth is invested or traded. Thus there is not a huge quantity of gold above the ground. In fact, Warren Buffett, possibly the most successful investor during the 20th century, famously said that all the gold in existence would fit into a 20 m3 cube. (This is disputed, however, with some investors subsequently calculating that the cube would in fact be larger or smaller.)
Gold jewellery
All the gold that exists in jewellery could, potentially, come back onto the market at any time and is therefore more significant to the overall price of gold than that which is annually mined. This means that the price of gold is affected by the demand for the gold rather than the supply of it. Unsurprisingly, given this situation, the recycling of second hand gold jewellery has developed into a huge industry over the past decade. While there are some companies that offer a reasonable price for jewellery, others are exploiting their clients and offering a small fraction of what the gold is actually worth.
Gold bars, coins and exchange traded funds
There are three ways of investing in gold in the 21st century. The traditional way is to buy gold bars which come in various sizes, ranging from 10 g to 12 kilograms or more. However, the larger the bar the easier it is to forge – by filling it with tungsten for example. For this reason gold coins remain the more popular way to own gold. The most common coin is the Krugerrand and there are thought to be 1,400 tonnes in circulation. Gold exchange traded products which include gold exchange-traded funds or gold ETFs are a simple method of trading in gold without having to store physical gold bars or coins. These investment funds are traded on the stock exchange. Only large broker dealers can buy or sell the funds, as creation units. However, individuals can trade on the open market, using a retail broker.