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Don’t Give Up on Gold Just Yet


Industrial metals and commodities shares have been dropping in recent times according to some recent market statistics. Most importantly is Gold which has seen a drop in not seen since early 2000s. As at today, most people have turned away from gold and investing in gold is now termed a fools investment owing to the all time low drop in prices of gold. However, even though, gold is down at the moment, there are people who think there is an opportunity to invest in it as there is a certainty that the values of gold will rise again.


Since the month of March, the price of Gold seems to have been dropping continuously even as the US dollar keeps appreciating. In fact, it now looks like any increase in the interstate rate in the US strengthens the US dollar leading to more fund drainage from metals and commodities.


It shouldn’t really be a surprise about what is happening to gold at the moment. It is has been known that the US Dollar and gold have always been at the opposite end therefore the dropping the price of gold just signifies the strength of the US currency which has opened up opportunities for trading as against trading in commodities.


There are several reasons for this slump. In the first place, there seem to be an overestimation of the amount of gold that is held by China. Unfortunately, the size of 6 million tons is not really enough as expected and the knowledge of this situation is what has plunged the price of gold. Besides, another top gold demanding country which is India decreased their demand for gold last year and this also contributed to what gold is experiencing at the moment.


The value of gold has kept decreasing despite the major holidays which normally increase the need for gold in India and China. Also, the Greek situation has also played a part as uncertainty of the Euro paved way for the Dollar to rise as more and more investors shifted their currency holding to the dollar.
There is a belief that gold will bounce back real soon even though it currently stands at 1.3% to 96. For example, investors are still advised to hold off their gold for a little longer until the rate begins to find their normal placement.


It is important to note that despite all these, gold is still regarded as a “safe haven” especially for long term investors as a hedge against recession and inflation. Gold remains the only way wealth has been measured from generations to generations despite crash in global economy at some point. It is not being used in our daily transactions but its importance to the global economy cannot be over emphasized.
However, it is envisaged that a time will come when investors will not just look at buying the market gold but also start buying the physical gold as a long term investment. Should it get to this point, it is certain that gold prices will hit the roof again.

 

 

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The history of trading gold is quite long and can be traced form the ancient times. Gold was first used as currency and has remained a status symbol where it indicates affluence and wealth in a lot of societies. Even as at today, Gold is still rated high with its importance still felt in trade and business. The way countries and individual perceive gold could be a little different. For example, in most cases, individuals use gold as an insurance to an ever dwindling paper money while countries see gold as a measure of wealth which forms the base of their exchange. Inputs of Gold in today’s world financial markets will continue to be felt now and into the future.


The Gold Standard

The gold standard has continued to court some controversies due to variations in the world events which have come to shape business and finance relationships among nations. However, an explanation to Gold standard can be seen on Wikipedia as seen below

“The gold standard is a monetary system in which the standard economic unit of account is a fixed weight of gold.

Under the gold standard, currency issuers guarantee to redeem notes, upon demand, in that amount of gold. Governments that employ such a fixed unit of account, and which will redeem their notes to other governments in gold, share a fixed-currency relationship.

Supporters of the gold standard claim it is more resistant to credit and debt expansion. Unlike a fiat currency, the money backed by gold cannot be created arbitrarily by government action. This restraint prevents artificial inflation by the devaluation of currency. This is supposed to remove “currency uncertainty”, keep the credit of the issuing monetary authority sound, and encourage lending. Nevertheless, countries under a not truly 100% gold standard, like countries simultaneously using manipulated paper currencies, underwent debt crises and depressions throughout the history of its use with the central bank manipulation and inflation of the currency. The U.S. experienced this in its Panic of 1819 after its Second National Bank was chartered in 1816.

The gold standard is no longer used in any nation, having been replaced completely by fiat currency. It still is in use by private institutions in the supply of digital gold currency, which uses accounted gold grams as money”

Check out the full definition and other things surrounding it at http://en.wikipedia.org/wiki/Gold_standard

There has always been dispute agreeing on the time establishment of gold standards happened throughout history. For example, most people think all these started when Sir Isaac Newton system of measurement compared gold to silver.

However, until the 1870s, the international gold standard did not really become popular and it was not even popular among industrial nations in the 1890s. There were political movements against gold standards in many parts of the world and as a result paper based currencies started gaining more acceptance. There were times when gold standard became the savoir to the international money market but there were also times when it became a problem to the system.

The 20th century saw a period of world wars and the great depression in the 1930s paving way for turbulence on world finance. However, rules governing business and finance relations among nations were established in the Bretton-Woods agreements of 1944.

Bretton-Woods Agreement: Benchmark in Trading History

In order to control and keep the international forex market at strong levels after World War II, the Bretton-Woods agreement was signed and it came into effect. The countries which signed the agreement were to try and keep their currency value within range against the United States Dollar and an equal rate of gold. This gave the dollar a top position among currencies of the world as economic might shifted from Europe to America

As the United States Dollar was no longer able to be exchanged with gold, it led to the termination of Bretton-Woods agreement in 1971. This ushered in an era when the forces of demand and supply began controlling the currency market as free trade and new instruments of finance came into play.

What it is now

Things are really looking different now as technology and computers are now playing a role in the development of forex market today. The system today ensures that brokers and traders all over the world can freely exchange currencies including gold which can also be traded as well. It has a trading price which is benchmarked to the USD meaning how much gold can be bought or sold for 1 USD.
Gold has had an up and down history but one thing is that efforts have been made to balance international trade especially the forex market.

 

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