Gold has attracted investors throughout the centuries, protecting their wealth and providing a 'safe haven' in troubled or uncertain times. This appeal remains compelling for modern investors as gold can provide insurance against extreme movements that often occur in the value of traditional asset classes in uncertain times.

There is no doubt that identifiable investment demand in gold has increased considerably in recent years and there are a wide range of reasons and motivations for people and institutions to invest in gold.

Clearly a positive price outlook, underpinned by expectations that the growth in demand for the precious metal will continue to outstrip that of supply, provides a solid rationale for investment. Of all the key drivers of investment demand, one common thread remains constant: that all are rooted in gold's abilities to insure against uncertainty and instability and help to manage risk.

Gold investment can take many forms, and some investors may choose to combine two or more of these for flexibility. The distinction between buying physical gold and gaining exposure to movements in the gold price is not always clear, especially since it has always been possible to invest in bullion without actually taking physical delivery.

Gold as Hedge

Market cycles may come and go, but - over the long term - gold keeps its purchasing power. Its value, in terms of the real goods and services that it can buy, has remained remarkably stable. In contrast, the purchasing power of many currencies has generally declined due to the impact of rising prices for goods and services. As a result, gold is often bought to counter the effects of inflation and currency fluctuations.

Gold is often used as an effective hedge against fluctuations in the US dollar, the world's main trading currency. If the dollar appreciates, the dollar gold price falls, while a fall in the dollar relative to the other main currencies produces a rise in the gold price. While this may also be true of other assets, gold has consistently proved among the most effective in protecting against dollar weakness.