Gold has emotional, cultural, and financial value that supports its demand across generations. We’ll now discuss the key demand categories for gold, as defined by the World Gold Council (or WGC).
- Jewelry: Jewelry demand historically has accounted for over half of global gold demand. India and China are the two largest markets for gold jewelry, together representing over half of global demand in 2012. This demand remains supported by growing wealth and demographic shifts.
- Investment: Gold helps in risk management and capital preservation for institutional and private investors. Today, investments in gold accounts for over one-third of global demand. This demand is made up of direct ownership of bars and coins as well as indirect ownership via exchange-traded funds (or ETFs) like the SPDR Gold Trust (GLD) and the Gold Miners Index (GDX).
- Technology: Around 7% of the world’s gold demand is for technical applications. The electronics industry accounts for the bulk of this demand. Gold also finds use across a variety of high-technology industries in complex and difficult environments, including the space industry and in fuel cells.
- Central banks: Central banks have shifted in terms of patterns of gold buying and selling. Since 2010, central banks have been net buyers of gold. Their demand has expanded rapidly, growing from less than 2% of total world demand in 2010 to over 10% in 2013.
Since gold doesn’t generate any income by virtue of holding it, its demand as an investment is determined by the opportunity cost (the loss of other alternative income when one alternative is chosen) of holding it against alternative investments. When the opportunity cost of gold rises, its demand falls.
You can invest in gold through physical gold or stocks like Goldcorp Inc. (GG), Barrick Gold Corp. (ABX), Newmont Mining Corporation (NEM), Agnico Eagle Mines (AEM), and Yamana Gold (AUY). You can also use gold-backed ETFs.