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Gold is said to be a hedge against inflation, and is perceived by investors as a safe haven from the fluctuations in values of currency, such as the U.S. dollar. So investors believe that, at certain times, it may be better to keep a portion of an investment portfolio in gold, as it may appreciate better than holding the same amount in cash, currencies, bonds, or other investments.
As in all aspects of the economy, supply and demand affects the price of gold. As supplies of gold become scarce, prices tend to increase. As demand for gold decreases in favor of other investments such as stocks, the price of gold tends to decrease.
Jewelry accounts for roughly 68% of the demand for gold. This leaves 32% of the demand emanating from technology and manufacturing needs, as well as investors purchasing physical bullion and holding it, hoping it will appreciate in value. Gold plays an important role in the electronics industry, where it is an important component for its conductive, heat resistance, anti-corrosive, and chemical stability properties.
Most experts agree that gold is often included in portfolios as a hedge against economic, social, or political uncertainty.
From 2004 to 2008, the United States accounted for 11% of all gold purchases.
Fifty percent of the worldwide demand for gold in the form of jewelry comes from India, China, Turkey, and the Middle East.
Twenty percent of world gold demand comes in the form of investments, with India, Europe, and the United States leading the world.
When stocks are down or there is economic turbulence, some investors turn to gold as a safer way to protect their money.