Why should I invest in gold?
Gold should be considered as a foundation asset within any long term savings or investment portfolio because it offers unique benefits not easily replicated via any other investment. The extraordinary diversity of sources of demand for gold means its performance is more robust and stable in a range of market conditions than the vast majority of other assets. This insulation from prevailing cycles and trends offers investors insurance against unexpected and extreme movements in the value of other asset classes. Also, as one of the few financial assets that do not rely on an issuer's promise to pay, gold offers refuge from widespread default risk. Over time and across geography, gold is a historically and statistically proven safe store of value and greater ease of access has made it increasingly relevant and compelling for contemporary investors seeking to protect their capital and preserve their wealth.
For more detailed information on gold’s unique investment attributes, please click here.
How can I invest in gold?
A growing range of methods now allows investors to either buy gold, or simply gain exposure to gold price movements. From gold bars and coins, online accounts, accumulation plans, exchange traded products to mining stocks and funds of varying composition and complexity, the most appropriate gold investments will depend upon the investor’s specific requirements and outlook.
Our How to Invest section describes various ways that investors can gain access to gold.
For regulated financial products, please refer to your financial advisor or broker.
Am I better off buying bullion bars or coins?
Bullion bars and coins are priced on the basis of their fine gold content, plus a premium - a percentage over and above the current gold value of a bar or coin. Different premiums may be charged by the same dealer, depending on the availability of each type of bar or coin and the volume to be purchased. You may also want to check, at the time of purchase, how much commission might be charged by dealers to repurchase any bars or coins should you wish to sell them in the future.
Note also that older coins may have an additional scarcity or collectability value, although when discussing investment coins we focus primarily on modern, mass-produced bullion coins, rather than the rarer items that dominate the numismatic markets.
Choosing between small bars or coins will depend on your investment requirements and time frames. Bars typically attract smaller premiums but may be a little less liquid than coins.
How can I contact a bullion dealer?
There are different types of dealers of gold bullion products serving different types of clients
In the West, the term “bullion dealer” often refers to investment banks dealing in bullion. They may also be termed “bullion banks” and the most significant are members of the London Bullion Market Association. Bullion banks are “wholesale” suppliers and as such deal in large quantities (typically over 1000 ounces). They may service private clients wishing to deal in large quantities but normally this trade would occur via the client’s private bank. It’s worth noting that although only the London address and telephone number may be provided for some bullion dealers, they are large organisations and most have offices around the world.
Beyond the London bullion market, there are other substantial trading hubs – New York, Zurich and Tokyo - and each is likely to have local specialist banks and brokers (market makers), although most such institutions are also likely to interact with their counterparties across the globe.
Investors wishing to obtain or deal in smaller amounts of coins and bars should, perhaps, first consider the gold investment choices and issues referred to in our How to Invest area.
How do I know if a gold dealer is reliable?
The same counterparty risks apply to gold dealers that apply to traders in any other open market or industry. You should make appropriate enquiries regarding any counterparty to ensure they are financially sound, well-established and reliable. Accreditation by a recognised trade body or association is one of a number of useful indicators. The LBMA (London Bullion Market Association), for example, lists a number of dealers among its membership.
What is a GAP?
GAP stands for Gold Accumulation Plan and refers to an investment vehicle similar to a conventional savings plan in that it is based on the principle of putting aside a fixed sum of money at regular periods, typically every month. The fixed sum then buys gold every trading day in that month at a daily average price. The fixed monthly sums can be small, and purchases are not subject to the premium normally charged on small bars or coins. Because small amounts of gold are bought over a relatively long period of time, exposure to short-term price volatility is contained. Account holdings, when liquidated, can be converted into cash or physical gold products.
What are gold options and where can I buy them?
A gold option gives the owner the right (but not the obligation) to buy or sell gold bullion at a future data for a set price. All the bullion banks trade in gold options and would require you to have an account as a private banking client (which requires the bank to fulfil a thorough due diligence process). A list of bullion banks is available from the London Bullion Market Association (LBMA).
A second way of trading options is through the COMEX Division of the New York Mercantile Exchange (Renamed to CME Globex, after the 2008 merger between the Chicago Mercantile Exchange and NYMEX) but non-US residents should check with their financial advisors and the local regulatory body regarding the position with respect to trading by way of a foreign exchange.
The third route would be to contact a futures broker and ask what is available. Certain spread-betting companies trade gold options, for example.
There are also now option contracts on gold-backed ETFs, such as SPDR Gold Shares (GLD), which offer investors an additional way of accessing the gold market, although these products may be best suited to the more tactical, speculative investor.
Please note that this information is provided for your convenience only and should not be regarded as investment advice or a recommendation to buy or sell gold options or futures. You should seek advice from a qualified financial advisor who should take your personal financial situation into account.
Where do we get our daily gold price?
The market-clearing price of gold is set twice a day in London. It is commonly called the London fixing price (AM and PM) or simply the gold 'fix' (please also see question 10). This price, which is the international benchmark price, is set in US dollars per fine troy ounce of gold. Fix values and historical data are published by the LBMA and available by a range of additional sources.
When presenting the daily gold price in statistical or chart form, we typically refer to the London PM fix.
You can also view charts or access the ‘fix’ in a range of currencies in our price statistics area.
What is the gold "fix"?
The market-clearing price of gold, known as the ‘fix’ is set twice a day (AM and PM) in London. This price, which is based on actual orders by bullion bank clients, is the international benchmark price, providing a publicly available reference point for a ‘fair market price’ for gold; it is set in US dollars per fine troy ounce of gold.
The ‘price discovery’ process by which each fix is defined is as follows:
- The gold fix members converse each London business day at 10:30am and 3pm
- An opening price is announced by fix committee chairman and relayed to clients
- Clients place their orders with the members
- Members state the number of bars they wish to trade, and at what price
- Gold price adjusted based on net orders and new price is relayed to clients
- Clients change their orders and process repeats
- Price declared “fixed” when final buy and sell orders matches within 50 bars of each other
For further information on the London gold fix, please visit: www.goldfixing.com.
What weight is the gold price quoted in?
The spot price (London PM fix) quoted on our website is the US dollar price of one fine troy ounce of gold.
How much is a gram of gold worth?
The gold price is usually quoted in US dollars per troy ounce, although the units of weight used by the retail trade in specific countries vary widely and grams are also frequently referenced. To calculate the cost of one gram of gold, divide the US dollar price for one troy ounce by 31.1035 (one fine troy ounce is equal to 31.1035 grams).
What are the LBMA clearing statistics?
Published on a monthly basis by the LBMA, the London clearing statistics measure how much gold and silver is transferred on a net basis between the clearing accounts held at the six clearers (Barclays Bank Plc, Deutsche Bank AG London, HSBC Bank USA N.A. London Branch, JP Morgan, The Bank of Nova Scotia – ScotiaMocatta, UBS AG). As each transfer may be the result of multiple transactions, the figures are likely to represent a fraction of actual turnover. Only the debit side of each transfer is recorded. Daily averages for three sets of measures are released: the number of ounces transferred, value (based on the average monthly London PM fixing for gold) and the number of transfers.
Where can I find futures prices?
Futures contracts are traded on the following regulated commodity exchanges:
China: SGE and SFE
What are the major gold exchanges and how long have they been around?
The Chinese Gold and Silver Exchange Society in Hong Kong registered under this name with the government in 1918, although trading had been taking place with a degree of rules and regulations since 1910 (as the "Gold and silver exchange co").
- The COMEX division of NYMEX began trading gold on 31st December 1974.
- TOCOM began trading gold on 23rd March 1982.
- CBOT began trading gold on 20th February 1979.
- The Istanbul Gold Exchange began trading gold on 26th July 1995.
- MCX began trading gold on 10th November 2003.
- NCDEX began trading gold on 15th December 2003.
- The Shanghai Gold Exchange began trading gold on 20th October 2002.
- TurkDEX began trading gold on 4th February 2005.
- DGCX began trading gold in June 2005.
How do historical returns on gold compare with those for stocks?
On average, across markets and across time, historical returns on gold tend to be unrelated to those on stocks, as represented by a number of stock market indices. This is of particular interest to investors seeking to diversify their portfolios. The correlation between returns on stocks and those on gold are reported in our Investment Statistics for a range of countries and are updated every quarter. In addition, our Research area contains a number of papers dealing with gold’s longer-term performance profile compared with other asset classes and how these may interact in a balanced portfolio across market cycles.
What are the NYSE Arca Gold BUGS and Philadelphia Stock Exchange Gold and Silver Indices?
The NYSE Arca Gold BUGS Index (ticker HUI) comprises 15 gold mining companies which are largely unhedged or have a policy of being unhedged . More information is available directly from the New York Stock Exchange. The Philadelphia Stock Exchange Gold and Silver Sector index (ticker XAU) is an index of shares of 16 gold and silver mining companies listed on the Philadelphia Stock Exchange.
In addition, there are a number of other established indices focusing on the gold sector; for example, NYSE Arca Gold Miners Index, S&P/TSX Global Gold Index, FTSE Gold Mine Index.
Also, gold shares feature prominently in many other sector indices, particularly those representing the broader natural resources and extractive industry markets.
Do gold mutual funds invest in gold?
Many gold mutual funds invest in the shares of gold mining companies, although some also invest in physical gold. The composition of each fund will vary widely but details describing its components and overall objectives should be available in its published prospectus . For more information on gold-oriented funds, please see our How to Invest section.
Adjusting for inflation the previous record gold price of US$850/oz set in January 1980 gives a value of over US$2,000/oz. Does this mean that gold is no longer an inflation hedge?
Using the 1980 price high as a reference point for discussions of gold’s inflation hedging potential can be misleading. Inflation-adjusting the US$850/oz peak of January 1980 would indeed give a figure of around US$2,500/oz. However, the gold price only fixed at that level on one day, largely as result of market panic prompted by the Russian invasion of Afghanistan. Three weeks earlier, gold was trading at US$473/oz, a price it had reached gradually over the previous three years. Then a week later it was trading at US$673/oz. Inflation-adjusting from US$850/oz is therefore an extremely biased starting point. Adjustments would be more accurate if calculations ‘smooth’ this temporary spike. A trend line drawn through the daily gold price between 1979 and 1981, for instance, gives a much more impartial starting point of around US$470/oz for January 1980. In today’s money, that would put gold at nearly US$1,400/oz.
Please note that the above references to inflation adjustment are based on end-2011 US CPI figures as a reference point for determining real prices. We recognise that some commentators question the accuracy of this index in capturing real-life inflation and we are also aware that it may not be wholly relevant for many readers. However, regardless of the precise definition or indicator of inflation used in such discussions, an examination of gold’s ability to hedge against inflation should focus on two key points, meaningful to investors and consumers across the globe: gold’s ability to retain purchasing power over time and its stability as a real store of value compared to most major currencies. While statistical analysis shows that gold may deviate significantly from its inflation hedging benchmark value over the short to medium-term, the evidence strongly supports the longer-term enduring value of gold in terms of the real goods and services it can buy, which has remained largely stable for many decades (and, indeed, centuries).
For more on gold’s unique ability as an inflation hedge, please click here.
Does the demand for gold follow a seasonal pattern?
There are seasonal patterns to jewellery demand, although the pattern varies from one country to another. Global demand is usually strongest in the fourth quarter of the year, followed by first quarter demand. The main drivers of this are:
- Western world: Christmas
- India: Gold buying peaks during the wedding season and at the times of various festivals that vary from region to another. The biggest festival is Diwali, which usually falls in late October or November. The wedding season varies from region to region but is normally from November to May with a break from approximately mid-December to mid-January. In August, the two-week Shrad period is inauspicious for ceremonies associated with gold buying; every three years or so this is followed by an additional month (Adik Mas) which is also not a time for gold buying. (Exact dates vary since the Hindu calendar is a lunar one.)
- China and East Asia: Chinese New Year (last part of January or first half of February)
- Islamic world: Eid Al Fitr at the end of Ramadan is a major gold giving occasion. Since the Islamic year is ten or eleven days shorter than the Gregorian calendar year, the date of Ramadan (ninth month of the Islamic calendar) moves each year. Eid Al Adha (Feast of Sacrifice) takes place seventy days after the Eid Al Fitr and is also a significant gold-giving occasion. Pilgrims going to Mecca and Medina may also buy gold; the main pilgrimage period, the Haj, culminates around the time of the Eid Al Adha.
- Turkey: Demand is highest in the third quarter due to tourist purchases.
However, while there are clearly seasonal tendencies in key sectors – such as jewellery and broader retail markets – it is important to remember there are other drivers of demand that will have no seasonal component; investment demand, for example, might be driven by responses to specific market conditions or events or even policy decisions. It is this diversity of sources of demand for gold that produces a balanced and robust market, with seasonal factors sometimes clearly evident but at other times more subdued.
Where is gold mined?
A major development in gold mine production over the last few decades has been the greater geographical dispersal of production. China is now the world’s largest gold producing country with Australia, the US, Russia and South Africa the next major producers (in order of annual tonnage produced in 2011). However, gold is produced from mines on every continent except Antarctica, where all forms of mining are prohibited. There are over seven hundred gold mines operating worldwide, ranging in scale from minor to enormous, and around seven hundred more that produce gold as a bi-product.
This figure doesn’t include mining at the very small-scale, artisanal and often ‘unofficial’ level, which, while it has increased dramatically over the last few years, is generally extremely labour-intensive and inefficient, producing relatively small amounts of gold in tonnage terms.
Today, the overall level of global mine production is relatively stable. Annual production has averaged approximately 2,612 tonnes over the last five years (to end 2011). Production over the last few years has been marginally above this level largely due to the escalated levels of exploration and project development expenditure over the last decade which have finally started to bear fruit. That said, the number of significant new finds continues to diminish and the basic stability of production reflects the fact that when new mines are developed, they are mostly serving to replace current output, rather than expanding global production levels.
How much gold has been mined?
The best estimates available suggest that the total volume of gold ever mined up to the end of 2011 was approximately 171,300 tonnes, of which around 59% has been mined since 1950.
How much gold is still underground?
The volume of gold available for future extraction is a product of both geology and economics. Measuring the volume of gold ore available for mining will depend on what quality of gold ore grade is classed at a specific time as a viable ‘reserve’ - ore that can be economically/profitably mined at the current or expected gold price. Latest figures from the US Geological Society (USGS) estimated ‘Global Gold Reserves’ at around 51,000 tonnes.
On this basis, if mine supply were the only source to satisfy current levels of demand, these reserves would only last 12 years or so. However, there are lower grades available that might become economical should the price rise further (or, albeit unlikely, the cost of extraction fall) and the USGS ‘global reserve base’ of gold for possible future extraction has actually risen over the last decade to take into account improved technology, new discoveries and, most significantly, the impetus provided by the rising price.
Broadly speaking, however, the amount of known reserves has remained fairly constant over recent years since production from new sources has replaced those reserves that have been exploited.
What is the average gold mining grade?
The grade of ore refers to the proportion of gold contained in the ore of a particular mine and is quoted in grams per tonne (g/t). This varies greatly from mine to mine. For example, at a rough estimate, the larger, more efficient South African underground operations may extract ore averaging 8-10g/t) while the other South African underground mines produce grades nearer 4-6g/t. Many of the operations elsewhere in the world are open pit mines, which run at lower grades, from as little as 1g/t up to around 3-4g/t. Perhaps a more significant piece of information for investors than average ore grade is cost per ounce, which is an indicator of both grade quality (grams/tonne) and production cost (USD/tonne).
What is the World Gold Council?
The World Gold Council is the market development organisation for the gold industry. Working within the investment, jewellery and technology sectors, as well as engaging in government affairs, our purpose is to provide industry leadership, whilst stimulating and sustaining demand for gold.
Market Jargon explained
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How do I access your published research?
Gold investment research produced by the World Gold Council can be accessed via our website research pages or via our iPad research app. In order to view and download research, you will require a gold.org account. However, registration is simple, free of charge, and can be implemented by clicking here.
When setting up your account profile you can also select to be notified, via email, when new research is produced.