Before investing in gold, three factors to consider – by Ian McGugan (Globe and Mail – May 16, 2016)

Before you buy into the current fad and start purchasing gold, you should stop and ask what the market’s new darling is worth – and why. It’s a fascinating question to tackle, because gold possesses the rare distinction of being both next to useless and highly valuable.

The metal has few practical applications. Electronics, dentistry and industrial uses account for less than 8 per cent of global gold sales. More frivolous, unpredictable sources of demand are the true drivers of the bullion market. Last year, for instance, jewellery buyers generated around 57 per cent of sales, while investors and central banks were responsible for about 35 per cent of demand.

The enthusiasm of these key buyers can fluctuate wildly, depending on everything from wedding seasons to perceptions of economic uncertainty. For all the talk about gold as a store of value, the market for the metal moves on gusts of emotion.

Investors, for instance, propelled the surge in demand during the first quarter of this year to near-record levels. Those investors bought 617.6 tonnes of the yellow metal, more than triple the amount they purchased in the final quarter of last year, according to the World Gold Council. Meanwhile, demand from jewellery buyers tumbled.

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