In February this year, the International Monetary Fund (IMF) announced that gold prices were set to fall by almost a third in the next four years as it predicted a global economic slowdown.
The gold price has fallen by about 10 per cent a year since then, with investors and policymakers alike saying the move to curb global growth is a bad idea.
The Federal Reserve, however, is warning that if the global economy slows further, the impact on the global gold price could be severe.
Why the rise in gold?
The global gold market is dominated by two big players in the market.
Gold bullion is traded in a number of currencies, which include the US dollar, British pound and the Japanese yen.
According to the International Gold Council (IGC), gold prices have been driven up by an increasing number of investors, who want to diversify their portfolios.
“We are seeing a much higher proportion of people who are not just buying gold, but are buying gold in a different currency,” says James Flanders, an economist at the IGC.
That is creating a significant market for bullion that is driven by speculation and short selling.
In the meantime, the demand for gold has increased by about 80 per cent since 2007.
How much gold does the market have?
According the IGMC, the world’s gold supply is around $3.4 trillion, of which $1.2 trillion is in bullion and another $3 trillion is held as cash.
If we go back to 2007, the US had the second largest gold supply in the world, but that is now about $400 billion and China and India are taking their share of the market, the IGC said.
China is now the world leader with a total of about $200 billion.
India has about $100 billion and the United States about $60 billion.
What is the biggest market for gold?
The market for the precious metal is growing and is set to continue to do so, according to the Igemc.
Investors are now buying gold from countries such as Argentina, Brazil, China, India, Indonesia and the US.
At the same time, investors are buying bullion from countries like Argentina, Russia, Canada, Japan and the UK.
There are also countries such a Canada, Switzerland, Russia and Australia that are buying in excess of $1 billion.
What does the gold price mean?
“Gold is an extremely volatile and precious metal,” said James Fales, an analyst at the International Bank for Reconstruction and Development (IBRD).
“It’s very hard to be sure of how much gold will be bought or sold in the future, but if it goes down, it’s probably going to be a significant fall in the price of gold,” he said.
Gold is traded by various means in the financial markets and is often used to hedge against risks, but analysts are increasingly warning that investors are losing confidence in the value of gold.
A drop in the gold value means that a financial institution will not be able to pay back its creditors, meaning it will have to make a big investment in the form of a bond or a security.
It also means that investors will have less money to spend on goods and services.
Who owns the gold?
Gold bullions are not owned by individual investors or financial institutions.
Each gold bullion producer has a separate contract to hold the gold in the ground, according the IGC.
This contract is typically called a “corporation” and is signed by a group of investors.
For example, if you own 10 ounces of gold, you will need to sign a “company contract” to hold it in a bank.
The contract is signed in gold, and if there is any problem with the contract, the bullion will be held as collateral until a certain date.
When is the gold sold?
In April, the United Kingdom’s Royal Mint stopped issuing gold bullions and sold them to investors.
It was due to stop doing so due to the “global financial crisis” and a decline in gold prices.
However, in September, the Royal Mint announced that it would resume issuing gold and would start to sell the gold bullionic as it has done for years.
Should gold prices fall, would investors lose money?
It is impossible to say whether investors will lose money.
But it is important to understand that gold bullsions will be worth less when the price is reduced.
Many investors have expressed concern that if gold prices do fall, investors will not make as much money as they used to.
James Flanders of the Igmc says that the most common reason why investors are selling gold is because they are not getting returns on their investment.
Some investors also worry that the bullions could become worthless if the price declines too much.