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The demand and supply for gold as store of value has been fluctuating in the recent past due to a number of factors identified in the article. Factors affecting demand of gold are seen to affect the willingness and ability of a potential buyer to purchase or own the gold. The factors identified are ascension of price of the gold, uncertain returns from more conventional investment methods, weak monetary policies by the banks, and the exposure of banks to sovereign debts. Additionally, the fragile world economy, and decline in the demand of jewelry are also factors that affect the demand of gold. Factors affecting the supply of gold include their decline in the gold mines, the rise in exploration costs, economic and political instability of producing countries, and gold being held back by central banks. Additionally, overpricing by the Indian and Chinese and possible inflation in the future is a factor affecting the supply of gold to the economy.
Western investors who are attracted to purchase more gold with the hope that they might be able to sell it profitably seemingly portray how price influences the demand for gold. This is because the short-term increase in price attracts them to own the gold with the hope of selling it profitably in the future. Investors are also driven to have gold as a store of value when other conventional investments produce less promising returns. This will obviously increase the demand for gold as an item for investment. The existence of weak monetary policies in the banking sector positions the investors at an angle with much doubt due to possible inflation who obviously resort to gold as the only alternative item to store the value for their money. These doubts by the investors are aggravated by the unstable world economy that may affect all the savings by individuals. This devalues the strength of the cash they have. They will therefore be forced to resort to gold as then only alternative to store the value of the money and this will increase the demand for gold. The decline in the demand for jewelry has also affected the demand of gold as a store of value on investors’ part because it means it is less valuable and therefore investors will be less attracted to the gold.
As mentioned earlier, decline of gold reserves in the mines has greatly affected the supply of gold to the world economy and market. When this is coupled with the rising exploration and extraction cost, it becomes less profitable to mine the gold thereby reducing its supply to the market. In Africa and Asia for instance, the instability of the political and economic environment has posed a major challenge for the supply of gold in the global market. This is because there is absence of an ambient environment that can warrant the safe exploration and mining of the gold. This therefore reduces the amount of gold used as store of value in the economy. Central banks have been known to hold back part of gold in their reserves but this reduces the overall supply of gold to the hands that can be able to use it a store of value. The Chinese and Asian middleclass women have been seen overpricing jewelry resulting in low purchases made. This has an influence on the supply of gold in the sense that, less investors will be attracted thereby limiting its use a store of value.
In the American market, factors affecting the demand of gold as a store of value include inflation. This has seen many individuals holding back their gold reserves for fear devaluation by the government. Time is also a factor that influences the demand and supply of gold. A short time left for the prices to adjust to the effect of inflation results in unstable demand and supply equilibrium. The price also affects the response of supply of gold as a store of value. The economist projects that the continued instability of the world economy coupled with inflation will enable to remain as the most preferred item as a store of value. Additionally, a reduction in the price of gold is expected if inflation can be contained. This is a fact, which leaves me with the only option to agree with the ideas of the economist about the use of gold as a store of value.
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