The World Gold Council estimated as recently as 2005 the global supply of gold to be approximately 3,859 tonnes, about 105 tonnes more than the anticipated demand of 3,754 tonnes. That surplus should have helped lower, or at least steady, the price of gold in the world market. However, that turned out to not be the case and investors who got into the gold market early have realised some good returns.
The economic downturn apparently spooked investors into turning their cash reserves into something more stable and the demand for gold outpaced previous estimates. Demand is subject to the number of investors who hold gold for private ownership and this makes it extremely difficult to predict the price of gold, more so than other commodities in the market. Demand for gold was up almost 65 percent more in 2008 than it was in 2007.
A few mining companies set the price up to a year and a half in advance, called hedging, which provides investors with a cushion against short-term gold price changes. However, it also reduces the return on their investments when the price of gold increases significantly. Additionally, the share prices of the mining company will generally follow the price of gold downward, for example if the price of gold falls about 10 percent reflecting a 20 percent lower margin in the price of gold, shares of the mining company can also be expected to lose 20 percent of its share value.
With the volatility of the gold market, largely affected by investor sentiment, along with supply and demand, those considering investing in gold should talk to the experts at http://comparethefinancialmarkets.com for accurate information on this alternative form of investment. While gold has historically provided safety in maintaining a cash equivalent, the emotional edge affecting this metal is something that is much harder to gauge than in many other types of investing.
Comparethefinancialmarkets.com deals with many Alternative Investment companies directly.