Gold is soft, yellow, malleable precious metal. Gold is inferior to platinum group metals in its chemical properties. In addition, the cost of gold is traditionally high; therefore, only 10% of the world’s gold is used for industrial purposes: as a material for electrical contacts in microelectronics, metal soldering, in pharmacology and dentistry. The rest of the gold available is distributed approximately equally between the reserves of central and commercial banks, the property of individuals in the form of bars and jewelry.
Gold has long been used by many nations as money. Since the advent of paper money, secured by gold reserves, the rate of gold has been set by the monetary authorities, depending on the amount of gold reserves of the country. During the expansion of production and trade in the nineteenth and twentieth centuries, paper money gradually devalued due to the lack of gold security. The rate of gold was constantly growing at that time. This had continued until 1944, when the US dollar remained the only currency tied to gold at a fixed rate due the Bretton woods agreement. Gold actually turned from the main to the reserve currency. In 1971, the US government unilaterally renounced its obligations to maintain the official price of gold in us dollars. 1976 saw a complete demonetization of gold after the introduction of the floating exchange-rate system. Gold lost its monetary functions of a reserve currency and became just a commodity. Since that time, gold prices have been determined by the volume of supply and demand in the commodity market.
Currently, the price of gold depends mainly on the investment demand. In developing countries, such as India and China, the demand for gold is mainly in the form of jewelry. The mechanisms of investing in gold in developed countries are more diverse: buying gold bars, investment coins, opening an allocated account or investing in ETF funds.
Currently, the value of gold is an important economic indicator that allows you to assess the propensity of investors to risk. The quotations of gold and stock market indices often change in the opposite way: investors prefer to invest in gold as in a protective asset during an unstable economic situation. On the contrary, investors are more risky when they are optimistic. As a result, there is a capital inflow into the stock market and the outflow of capital from the commodity market. Therefore, the quotations of gold often fall in periods of economic growth.