Many people participate in acquiring physical gold worldwide. Some want capital appreciation and others are looking for preservation of principle. It should be noted that gold is foremost a form of financial insurance for the paper assets in your portfolio. This is because gold and paper assets generally have an inverse relationship. Meaning when stocks go down gold goes up. However there have been periods when stocks and gold have risen together.
The types of buyers of gold are diverse. From foreign central banks and governments, to large institutional buyers and individuals looking to protect the money they have. Most buyers of gold today are concerned with the current economic situation worldwide. The main concern in the United States is the erosion of the U.S. dollar. On a side note, as the dollar becomes weaker the value of gold rises so everyday that the dollar weakens a portion of the rise in gold is attributed to gold being priced in dollars. Another portion of the rise in price is supply and demand.
Anyone who is concerned with the weakness in the U.S. dollar is your main buyers of physical gold today. India recently purchased 200 metric tones of gold from the IMF, and sited their concern with the U.S. dollar. There are those that are buying gold for growth in their portfolio as well. Those institutions and individuals that want to capitalize on the appreciation potential that we see ahead.
There are other reasons why people acquire gold:
1. High inflation, or the fear of high inflation
2. Turmoil in stock markets
3. Spiking interest rates
4. Oil and other commodity price shocks
5. Banking crises
6. International loan defaults and other debt crises
7. Geopolitical crisis
Gold generally performs well in all of these circumstances. Those that own gold in their portfolios have to decide how much to own. This is the trickiest part because you have to determine what your goals, objectives and concerns are. If the dollar was to be devalued by 50% one would need to own 33% of their portfolio in gold to offset the losses in their paper assets (this is obviously grossly overstated, but meant to give general understanding). Many governments and individuals own gold, and as the trend with the dollar continues more people will buy into the gold market, driving values higher.