Gold, like The wife, is sensitive and mysterious.

Investment funds tied to gold have gained popularity in recent years, leading to a significant rise in gold prices. In March 2023, gold prices surged due to concerns about inflation and serious issues in the American banking sector. This trend was further exacerbated by the collapse of several American and European banks, including the American SVP Bank and the Swiss Credit Bank. The fear of widespread repercussions in the global financial sector prompted intervention from the governments of the United States, Switzerland, and Britain to support the banking sector and mitigate the damage.

Despite the uncertainty, gold prices continued to fluctuate at unprecedented levels, hovering around $2000 per ounce for approximately six consecutive months. However, starting in October, gold prices began to decline, reaching around $1820 per ounce. This downward trend was short-lived, as gold prices started to rise again in the first week of October. This resurgence was supported by the uncertain global political and economic situations, particularly following events in the Middle East. These fluctuations underscore the inherent instability of gold prices over the past two decades.

Gold’s price dynamics reveal its unique role as a financial asset, investment tool, and hedge, distinguishing it from other commodities. The journey of gold’s price evolution traces back to 2003 when the Australian Stock Exchange introduced the Gold Exchange-Traded Fund (gold ETF), followed by its introduction to the American stock market in 2004, leading to its global proliferation.

Gold investment funds, also known as gold ETFs, are companies that invest in gold. These companies offer shares to investors in financial markets, employing straightforward operational mechanisms. When investors purchase shares of these companies, the proceeds are used to acquire real gold, securely stored in reputable institutions like the Bank of England. Each share represents a specific value of gold, securely stored elsewhere.

The key characteristic of this investment type is securitization, where shares are backed by tangible assets like gold, providing investors with a tradable security holding immediate cash value. In simpler terms, investors hold a security backed by an asset in demand, facilitating easy readability when desired. These shares serve as evidence of ownership in a gold-backed company.

A notable distinction between investing in these funds and purchasing physical gold is that investors are relieved of the responsibility of storing and safeguarding the gold, a costly and labour-intensive process. Additionally, owning shares in these companies means holding the value of gold rather than the physical asset itself, as each share represents a portion of the gold.

Traditionally, the weight of gold represented by each share was standardized, typically at one gram, though this may vary based on the pricing strategy of the fund or company. When liquidating shares, investors receive the current market value, generally equivalent to the value of a gram of gold, subject to minor fluctuations.

This liquidity and speed of conversion into currency align with the primary objective of investing in gold: securitization, facilitating swift conversion into currency or its use as a medium of exchange, akin to historical practices underlying paper currencies and banking concepts.

Gold holds historical significance as the initial monetary currency facilitating international trade. As global trade evolved, gold emerged as the universally accepted financial currency among nations, irrespective of its minting method. Gold served as the cornerstone of currency issuance until the early 1970s when the link between gold and fiat currencies, particularly the U.S. dollar, was severed following Nixon’s policy shift.

The proliferation of investment funds backed by gold has reignited interest in this ancient currency, driving gold prices to unprecedented levels in recent decades. Despite the massive transactions occurring in the gold market worldwide, the physical gold remains securely stored in institutions like the Bank of England or banks in Manhattan. This paradigm shift in gold trading has reshaped the global gold market, with individuals’ financial resources accounting for approximately 45% of global gold consumption. In contrast, the steady increase in investors’ demand for gold, represented by gold-backed investment funds, accounts for about 24% of total gold demand, ranking second directly after personal use and surpassing central banks’ demand.

Investors play a significant role in controlling gold prices compared to those who trade gold as a commodity or trinket. Investors perceive gold as an easily liquefiable banknote, leading to extensive speculation on gold prices daily, making it highly sensitive and volatile. The holdings of gold by investment funds have reached approximately 3,300 tons, equivalent to approximately $200 billion according to current gold prices, highlighting the significant influence of these funds on the global gold market.