People all around the world have a desire for gold that is profound and lasting. This holds true not only for the champions returning from the Winter Olympics, but also for the less athletically inclined among us as well. While Sochi may recently have been the scene of some impressive aerial acrobatics, investors might be more interested in the fact that 2013 saw the biggest annual jump in gold jewelry sales in more than fifteen years.
The desire for the yellow metal has once again perked up after the price of gold crashed like a second-rate skier. The willingness of consumers to buy gold following a hard fall in price has positive implications for the commodity going forward.
Gold Never Loses Its Luster
Though gold is a type of investment such as a stock or a bond, it is different in one key respect. The value of stocks and bonds is determined only by what other people are willing to pay for them, whereas gold is argued to have worth for its intrinsic aesthetic appeal. Therefore, stocks and bonds are worthless without buyers, but there are no such fears with gold.
A couple of years of dismal returns may have temporarily tarnished the allure of gold as an investment, but the metal is still highly prized in the eyes of consumers. The volume of gold jewelry sold in 2013 was 17% higher than in the previous 12 months, while prices were down by 28%. The future of the gold price looks bright as investors are now having a change of heart and consumer demand is expected to continue growing.
Buying Among Consumers Lures Back Investors
Demand for gold is strengthening as a result of growing wealth in places like China and India. Gold jewelry sales in these countries reached record highs in 2013 due to lower market prices. The Middle East is also experiencing a surge in popularity for gold jewelry, with Turkey seeing record sales in 2013. Even in the United States, consumers have taken the opportunity to snap up gold jewelry at discounted prices, which brought an annual increase in sales volumes for the first time in over ten years.
Furthermore, survey data from India and China shows that consumers in these countries are keen to buy even more gold in 2014. Given that demand for gold jewelry is contingent on price, a coherent cycle may be created as consumers chase the gold price higher. A steady rise in the gold price is likely to attract more buying as consumers look to take advantage of relatively cheap gold before demand pushes it higher.
An upward trend in the gold price may also tempt investors back into buying. The period of large sell-offs is seemingly over since the metal found support from price-conscious consumers at around $1,200 an ounce.
Gold is already in the midst of a recovery with the gold price closing last week at a four-month high near $1,340 an ounce. As more investors start feeling confident enough to get back on the slopes, the gold price may soar like an Olympic ski jumper.