Understanding the Gold Market

For most of us dividend investors, the idea of a direct investment in gold is something of an alternative form of investment that is foreign in nature because gold doesn’t provide us with cash to spend or invest. Investment in gold bullion is pure speculation.

Even if gold doesn’t provide cash flow, which is what we normally look for in an investment, there are tens of thousands of people around the world who regularly invest in gold. And, it never hurts to learn more about some strategies behind other types of investments and what moves the gold market. After all, there are gold producers and mining companies that provide dividends to their shareholders.


This is a guest post on behalf of BullionVault, written by freelancer Tom Newton.

Gold is a precious metal that is not tied to any single currency or economic system, which means that its price is determined in a more complex way than ordinary stocks or resources. One could argue that the international price of gold is affected most by the United States, the eurozone, and China, and with that in mind here is a brief look at how each region is affecting the price of gold heading into 2013.

United States

The United States is having a fairly dramatic year in 2012, with a number of significant events that could have (and may still) affect gold prices. Some are weary that the slowly recovering U.S. economy and strengthening dollar will have a negative effect on gold prices, as gold and the dollar often share an inverse relationship. Additionally, the economic response to the reelection of President Obama was also thought to be a potential game changer – although, BullionVault’s Gold Price charts and other sources show that the election has actually had a minimal impact on the market. Next up the United States is the looming “fiscal cliff,” a series of spending and tax decisions that could have a drastic effect on the U.S. and world economy. Should the U.S. economy experience a downturn, gold may surge as investors look to safe alternatives to the dollar.


Another strong influence over the price of gold, the eurozone is currently showing signs that its struggles will require a very lengthy recovery. Much like the dollar, the euro often has something of an inverse relationship with gold. A strong euro means that Forex traders and investors will trust the euro, whereas a weak euro may lead investors to buy gold in order to protect and grow their wealth. There is some disagreement as to just how long the recovery may be, but it seems that for a time, the euro will be weak in comparison to recent years.


China is also a major player in the gold market, largely because it represents a massive consumer market. Some have predicted that as Chinese demand for gold bullion and gold products increases while world production of gold slows gradually, the Chinese market will contribute to a natural rise in prices. This is more of a long term outlook, however, and it remains to be seen how the Chinese market will react to shifting gold prices in 2013.

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