1 - Gold is the ultimate form of money and the perfect hedge.
Unlike paper currency, coins or other assets, gold has maintained its value throughout the ages. People see gold as a way to pass on and preserve their wealth from one generation to the next.
2. Weakness of the U.S. Dollar
Although the U.S. dollar is one of the world's most important stores of value its day in the sun is fading. The dollar has falling against every major currencies. this often prompts people to want the security gold offers, which raises gold prices. The price of gold nearly tripled between 1998 and 2008, reaching the $1,000-an-ounce milestone in early 2008. The decline in the U.S. dollar occurred for a number of reasons, including the country's large budget and trade deficits and as money supply increase the value of the dollar will decrease.
3 inflation
Gold has historically been an excellent hedge against inflation, because its price tends to rise when the cost of living increases. Since World War II, the five years in which U.S. inflation was at its highest were 1946, 1974, 1975, 1979 and 1980. During those five years, the average real return on the Dow was -12.33%, compared to 130.4% for gold
4. Deflation
Deflation, a period in which prices contract, business activity slows and the economy is burdened by excessive debt, has not been seen globally since the Great Depression of the 1930s. During that time, the relative purchasing power of gold soared while other prices dropped sharply.
5. Geopolitical Uncertainty
Gold retains its value not only in times of financial uncertainty, but in times of geopolitical uncertainty. It is often called the "crisis commodity", because people flee to its relative safety when world tensions rise; during such times, it often outperforms other investments. For example, gold prices experienced some of their largest recent movements during periods of tension with Iran and Iraq in 2007 and 2008. Its price often rises the most when confidence in governments is low
6. Supply & Demand
Much of the supply of gold in the market since the 1990s has come from sales of gold bullion from the vaults of global central banks. This selling by global central banks slowed greatly in 2008. production of new gold from mines has been on the decline since 2000. The annual gold-mining output fell from 2,573 metric tons in 2000 to 2,444 metric tons in 2007. It can take from five to 10 years to bring a new mine into production. As a general rule, reduction in the supply of gold increases gold prices
7. Financial Confidence
Gold alone creates financial confidence, independent of Wall St. Unlike other traditional paper investments gold will not file bankruptcy, it will not go out of business, nor does it need a bailout or stimulus package.
