• Continued weakness in the dollar. Gold is a statistically proven hedge against fluctuations in the US dollar, the world's main trading currency. The dollar has lost 5 percent against the Euro since September 2007.
• Unstable financial conditions in the light of recent and ongoing credit crisis. Gold is not matched by a liability. It can help to provide insurance against extreme movements in the value of traditional asset classes that can happen during unsettled times.
These short-term factors have, however, occurred on top of longer-term movements in supply and demand fundamentals that have supported the rise in the gold price since 2001: • Mine output. The gradual reduction of mine output in recent years, with only a small number of major gold finds by the mining industry, is constraining supply. The cost of extracting gold has also increased substantially in recent years.
• Jewellery demand. Robust global jewellery demand reaching $54bn in 2007, a third successive annual record. In tonnage terms, overall jewellery demand in 2007 was 6% higher than in 2006
• Both institutional and retail investors are increasingly familiar with gold's portfolio diversification benefits. The reason for holding diverse investments is to protect the portfolio against fluctuations in the value of any single asset class or set of assets that move in a similar direction. Portfolios that contain gold can be more robust and better able to cope with market uncertainties than those that do not.
• Easier access to investing in gold. Gold exchange traded funds (ETFs) have been instrumental in providing easy access to investing in gold. ETFs have stimulated demand because it has become as easy to trade gold as it is to trade any stock or share.
The market-clearing price of gold is set twice a day in London and is commonly referred to as the London fixing price (AM or PM). This price, which is the international benchmark price, is set in US dollars per fine troy ounce of gold.
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