Second, the physical supply of gold is relatively inelastic in the short term with regard to price. This means the supply will not increase even if the price does. That's because gold must be mined, and it takes a long time to find new mines and get the gold out of the ground.
This makes the market both thin and volatile when demand grows sharply. That means there are few traders who have a lot of influence in the market. They have the ability to drive prices up quickly once it looks like there is an upward trend. At a certain point, gold can quickly become a bubble. When the bubble bursts, you can lose a bundle.
Who Should Buy Gold?
The gold market is most appropriate for arbitrageurs who can take advantage of short-term price changes regardless of the level of the price of the metal. These are professional investors who have enough money to ride out any dramatic ups or downs. This should be a warning for the “average” investor, such as yourself, who will be at the mercy of the arbitrage.If you want to sleep well at night, putting a substantial portion of your portfolio into gold is not the way to do it. However, most financial planners advise putting a percentage of your investments into gold and other commodities to achieve a diversified portfolio.
