Like all other commodities, gold prices fluctuates most basically on a level of supply and demand. The production of new gold supply is currently relatively inelastic in spite of rising gold prices and demand for gold. The sustained growth of gold, in turn, will only continue due to the consistent level of increasing demand and the inelastic production of new supply.

Much of the allure to gold is because it is not subject to decay, rot, or rust. Gold has an intrinsic value, because it is rare, highly coveted the world over, and is a luxury item. Because of its rarity and its durability, gold has been almost universally acceptable as money for thousands of years. The metal is easily transportable, because it has a high value for its weight. This makes gold an excellent medium of exchange. Also, gold is fungible, where each unit of .999 fine gold (99.9% pure) is similar enough to another unit so as to be easily interchangeable. Gold is also nearly impossible to counterfeit, as genuine gold is easily recognizable. When measured by weight, gold is easily countable, and verifiable. These properties make gold an excellent unit of account.
As an investment, gold typically is viewed as a financial asset that will maintain its value during times of political, social, or economic distress. As such, gold can provide individual and institutional investors alike with a portfolio safety net against sharp downward spikes in complementary assets such as stocks and bonds.

For the typical investor’s portfolio, this combination of wealth and assets in typically comprised of stocks and bonds. Most financial analysts agree, however, that diversification of investment portfolios is a smart move for almost every investor in protecting against detrimental market fluctuations that will inevitably occur. Hence, diversification of investment portfolios is essential for those individuals wishing to maintain their wealth over the years to come.


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