Simon Greenspan, former futures trader and Gold and Silver Specialist at City commodities broker, Tullett Brown, explains why gold is still a good investment option in 2012.
Gold has been plunged back in to the headlines recently as it reached its highest price since November on February 28th before plummeting on the same day.
Equally, China this week said it is targeting slower growth for 2012, which sent tremors through the market creating fears that the rise of gold bubble, which has been steadily inflating over the last few years, could be about to burst.
Such fears have led to whisperings and some panic amongst investors, yet this need not be the case. Instead the drop in prices makes it a good time to buy gold. Yes, in the short term the conditions for gold are not great but the long term fundamentals in the gold market remain in place and do not show signs of disappearing.
A strong global economy does not always provide the most fertile conditions for gold investment. Gold obviously has a strong intrinsic value which means that it is an investment that has worth outside of its actual presentation.
Yes, the price can drop like it has done recently but its key strength is that it will never be worthless. However other investment options be they stocks, bonds, options, futures and even some currencies can become utterly worthless over time. When the markets are turbulent and investors are cautious, gold is a popular choice as it is a safe haven.
The global economy is by no means about to suddenly burst into life and boom. There are still dark times ahead of us. On our doorstep, the eurozone crisis is still a million miles from reaching a final conclusion.
No one can predict the outcome of that mess, I have a feeling there will be a few more twists and turns ahead of us yet! Either way the numerous bailouts will need to be refinanced. This will not only take time but money too. This refinancing will be done with newly printed paper money thus ramping up inflation and strengthening the price of gold.
Another fundamental is constrained supply and rising demand. Gold is obviously finite and cannot be manufactured, meaning it has to be mined. Gold mine supply has been effectively flat for the last decade and though mine production expanded by 3.8% in 2011 that is still a modest figure.
That is the beauty of finite commodities, they can never be replaced meaning the more that they get used, the rarer they become and consequently the more valuable they are, rather like antiques. The planet is not about to run out of gold anytime soon but at the moment there is pressure on mining companies to secure resources to match demands.
Gold has become one of the few winners in the economic slump of recent years. As it continues to achieve, there is growing scepticism in some quarters that it cannot go on that way. The fact is, the conditions that gold needs to flourish are still there and are not about to disappear anywhere in a hurry, still making the precious metal a shrewd investment.