Should you jump on the gold bandwagon?

October 1, 2011

Before jumping on the gold bandwagon, it is important to understand the market factors that impact gold pricing, and how this unique commodity may or may not fit into your overall investment portfolio.

Key Points

Q It seems like everyone is scared and buying gold now as an investment, regardless of the price. What factors, other than fear, impact gold prices?

One of the most common arguments against gold as an investment is that it is a non-productive asset. Gold does not pay any dividends, and in fact has a negative yield since there is a cost to store the physical metal if you choose to take possession. From a simple supply and demand standpoint, the demand for gold can be broken down into three categories: jewelry, investment, and industrial. Jewelry accounts for about 70% of the total annual global demand for gold. Interestingly, in Asia and the Middle East, gold jewelry serves a dual role, both as decorative jewelry and as a financial asset. Investment demand can also play a significant role in determining the price of gold, as it accounted for about 20% of demand in recent years.