Modern Day Gold investors

Nowadays investors buy gold for several different reasons and these reasons are as varied as the markets that trade it. Some of the most common reasons people invest in gold are listed below:

Speculation: The investor is convinced he will make a profit from a quick change in price. Usually this belief is based on a future foreseen or unforeseen event will affect the gold market or its demand. The speculator often thinks he has detected a pattern in the recent price activities tha t tells him the trend of future prices.

Asset allocation: Conventional asset allocation strategists used to recommend a 5% to 10% exposure to gold was reasonable on the basis of diversification. Although the addition of gold in portfolios has largely been deserted since the 1980s, asset allocators are once again considering it a source of worth.

Portfolio hedging: Like asset allocation strategies, except the purpose of the investment is to hedge against unforeseen crisis that may affect the price of other investments harmfully. Portfolios that contain gold are better able to withstand market upheavals than those that don't. Some of the latest independent studies have suggested that conventional diversifiers, like bonds, property and hedge funds often fail to stand up to market stress and may sell off with equities in times of insecurity. Even a small allocation of gold to a portfolio significantly improves its performance during unstable periods.

Insurance: The investor feels that possible events, if they take place, (e.g. war or calamity), may have a harmful influence on the worth of his other investments, but the reverse effect on the value of his gold.

Inflation hedgers: For centuries gold has remained a store of value. It has performed this function best in times of high inflation. Investors thus buy gold to protect themselves against a rise in inflation and a decline in the value of money, particularly paper money, or fiat currency.

Currency speculators: Since the main gold market is priced in U.S. dollars, speculators who believe the dollar will decline may buy gold. They think that if the Dollar declines, the gold price will remain constant in other currencies, thus rising in US Dollar terms. Gold may also be bought if they feel that a different currency will decline, since they expect the dollar price to be stable, but the foreign currency price to rise. There are a lot of currency traders that consider gold to be the 4th global currency, after the U.S. dollar, Japanese yen and European euro.