The Market For Gold- Is It Still A Good Investment?
The Story of Gold:
Gold is still perfect money, perhaps more perfect money than money. Gold remains the time-honored standard of wealth that no other currency can match. Gold has a long and complex history. From gold’s first discovery, it has symbolized wealth and guaranteed power. Gold has caused obsession in men and nations, destroyed some cultures and gave power to others. The rise of a gold standard was meant to stabilize the global economy, dictating that a nation must limit its issued currency to the amount of gold it held in reserve. Great Britain was the first to adopt the gold standard in 1821, followed, in the 1870s, by the rest of Europe. The system remained in effect until the end of the First World War, after which the US was the only country still honoring the Gold Standard. After the war, other countries were allowed to keep reserves of major currencies instead of gold. The arrival of the great depression marked the end of the U.S. export of gold in the 1930s. By the mid-20th century, the US dollar had replaced gold in international trade.
The former President of United States Herbert Hoover had said, “We have gold because we cannot trust Governments.” And also, he concluded that is perfect for 5 reasons: 1. Durability: Gold won’t rot, break, crumble, decay, corrode or tarnish. Gold is unaffected by air, water, and even most acids. 2. Convenience and portability: A lifetime of wealth will fit in your pocket. 3. Divisibility: Gold can easily be divided into smaller amounts. An ounce of gold can be split 100 or even 1000 times. 4. Consistency: One ounce of pure gold is exactly the same as any other ounce, enabling worldwide trade and liquidity of gold – unlike unique items of jewelry or artwork. 5. Demand: Gold has a staggering variety of uses, even more today than in Aristotle’s time. Its unique properties keep the demand high and the relative scarcity of the metal insures continued value.
The Perspective of Gold:
Gold has always been a monetary commodity and, like dollars and all other paper currencies, has virtually no practical or industrial utility. Gold is not currently a popular medium of exchange among private commercial counterparties, nor is it officially recognized by governments or central banks to be exchangeable in fixed terms with the competing paper currencies they produce. The World Gold Council estimates that official gold holders (governments and/or central banks that manufacture competing paper money) retain about 30.7 thousand tons of gold, or about 18% of above-ground physical gold; are currently adding to their physical stocks. Only about 0.05% of long positions in exchange-traded gold futures contracts actually take physical delivery of gold, and exchange inventories available for delivery are less than 5% of outstanding contracts.
As we can see, the left graph is the 1-year gold price, and the trend of price is within $1400 and $1900. Gold reached to the highest price, nearly $1900 per oz., but the price dropped significantly in September, 2011. However, by looking the graph on the right side, the trend of gold price is still growing up.
Therefore, people might ask: is there room for gold price to go higher? According to the article by Peter Nulty on November 23, 2011, he mentioned that there is certainly a case to be made for gold price to go higher because economic weakness among developed nations and issues surrounding the debt crisis in Europe have created uneasiness and a sense of uncertainty. Since gold has historically been seen as a store of value, it has become increasingly attractive.
In the following paragraphs, we will discuss the current gold market situation and analysis the market for gold to determine why gold is still a good investment.
Current Gold Market Situation
Typically, the gold market investment is regarded as a hedge tool, especially in times of uncertainty. It...
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