Often, you might come across a question on forums which reads, ‘does cash for gold work?’. There is no single answer to this question. This article describes how the value of gold is determined, and how it is traded to generate profit.
Gold, represented by the symbol Au on the periodic table, is one of the costliest metals on Earth, and one of the oldest measures of wealth. In ancient Indian, Persian, Chinese, and South American civilizations, this metal held religious importance. It was worshiped, used for trade, and more prominently, it was domestically used to mint coins as currency and make jewelry. Even today, it is highly valued as an asset. India is the largest consumer of gold in the international market, with 860 metric tons of gold bought in 2012 alone.
Gold as an Asset
Much has been said about gold as an asset. The world has started using so many currencies for cash-related investments, funds and securities, it seems that these days, gold is only good for making jewelry products. Most investments today operate on the basis of money and securities market. The common framework is simple; all a person has to do is invest some amount in the market through a stock or a currency exchange, and hope for good returns.
Gold is a commodity that has considerably grown in value since 1970. Hence, investing in this metal almost always yields good profit. The process of investing in it is quite simple. All a potential investor needs to do is purchase this metal from the central bank, a jeweler, or a normal bank, and hold it until the prices rise, and then sell it for a profit. Some nations maintain important norms and standards for measuring the actual price of gold. Its per gram or carat value is determined by the International Monetary Fund and the central banks of respective nations. This value changes every day. There are two principal parameters that can be used to determine the value of this commodity. The supply, or the amount of product that has entered the market during the previous day, and the current demand for it in the market. The demand and supply curves are then put together, and the point of their intersection becomes the price of the day. There are several indicators that will forewarn you of an upward parabola. Festive season at the end of January to the start of February, and harvest-related festivities of Asian countries in the early winters, are some indicators to an upward parabola.
The practical mechanism that is followed is also quite simple. If you are in need of cash, then you can easily sell off your gold jewelry in any jewelry store. It must be noted that the jeweler may ask for a receipt or a proof of originality. Also, some jewelers do not accept unrecognized (ones that do not carry a brand) jewels. Some financial institutes also purchase this metal, and so do some banks. It can also be used as a collateral, if you want to borrow a secured loan. Private lenders especially prefer gold, because it is liquid asset and can be sold easily. You can check online for prices quoted by the central government before selling your product.
In the short-term, the upper and lower limits of fluctuations of gold prices are very close to each other, meaning that, price change is not very large, but can easily provide a decent, if not high return.