Before the 1930s the worlds currency, and pretty much any good or service that was bought or sold, was judged against gold – the gold standard. So rather than comparing the Japanese Yen to the US Dollar, both were compared to how much gold they were worth. The Great Depression in the 1920s really saw the end of the gold standard. Read here: https://www.investopedia.com/ask/answers/09/gold-standard.asp
Then in the 1930s it became illegal in America for a member of the public to actually own gold bullion. The idea of stuffing a mattress full of cash may not have been so farfetched – the economy was suffering and anyone who held gold in a physical format was meant to hand it in to the American government for a cash payout. Although likely a certain amount would have been converted into jewelry to avoid the insecurity of relying on a paper currency. Recent economic history had not been kind.
Buying Gold Bullion
Since 1975 it has been perfectly legal for Americans to buy gold bullion – usually sold in either bars or bullion coins. However, the gold bullion price does fluctuate based on the spot gold price. Fluctuations are obviously caused by demand for gold, but this can be caused by increased or decreased production of gold mining operations around the world.
There are Market analysts that spend their time doing nothing but trying to anticipate what the gold spot price and the resources market will do. Although you can find a lot of this analysis is online, in newsprint, the FinTimes or even podcasts, generally buying gold bullion is not a buy and sell investment. Investing in gold bullion is preferred for a longer-term secure investment opportunity.
Buy, Sell, Hold
With the stock market stocks are often bought and sold within hours if not minutes, particularly if the commodity being traded in has a particularly volatile pricing fluctuation. Buying gold stocks or investing in gold companies might even see this same level of buy/sell trading happening quickly. However, physical gold in purchased with the idea of holding it for quite some time. Although the gold spot price will occasionally drop it has generally been pretty consistent in increasing its value.
Back in 1972 the gold price hit a low of $44. Where as the gold price hit a high of almost $2000 in 2011. Which is obviously quite a significant amount of consistent growth.
What’s The Difference between Gold Spot Price and Gold Bullion Price?
Well, there isn’t really a difference.
The spot gold price is the general price that traders dealing in gold are buying and selling gold in – and it is an average based on what the wholesale rate for bullion dealers is. When you buy gold bullion you are buying it in the current price. If you bought yesterday you might have paid a different price, if you by tomorrow you likely will pay something different again.
Although there are different gold spot prices for different locations around the world based on things like current local gold stores.
Each bullion dealer has the ability to set whatever rates they want to buy or sell gold at. However, the nature of the market means that if a dealer over or underinflates a gold price the market will tend to correct itself very quickly – even if the deals have to be done one trade at a time.
Money in the bank
Although most governments do have gold reserves to back up their currency, few banks do. Often the bank is relying on the government to be able to back up their exchanges, which as we have seen in the last 10 years around the world, doesn’t always work.
Where Does The Gold Go?
Although gold bullion is generally purchased by longer term investors – this obviously isn’t the old reason to buy gold. Part of its value isn’t just in minting currency, but it is also a valuable part of the electronics industry. A large amount of the world’s gold actually goes to India to be turned into jewelry – in itself this also works as an underground currency as well. China is also a large consumer of gold and gold products – particularly in celebrations leading up to the lunar new year. The large population of both of these countries as well as their rapidly developing upper-class groups mean that they do have more money to spend on buying gold.