Away from gold then back to gold
How world currencies re-tie the knot with goldby Steve Austin
- 2007/06/06
Up until 40 years ago all world currencies were pegged to the gold standard. It means anyone could take his money to a bank and come out with gold. As a consequence a country's central bank could only print money to the extent it had enough gold in reserve to back it up. But this all changed in 1971 when paper-money was deemed as trustworthy as gold. Gold vs. Dollar
Was it a mistake? The recent trend of world economies is to "diversify away from US dollar investments". To put it another way, world economies are loosing faith in the dollar because the US finances its trade imbalance by printing more and more bills. As goes the common saying "A tree does not grow to the sky" : printing more and more paper money does not increase worth forever and eventually the tall tree falls.
As world economies reduce their dollar reserves, gold is regaining favor as a safe bet. China and India, huge exporters and holders of US currency are both avid buyers of gold. There the ever-more affluent middle-class consumes a large portion of the gold market via jewellery. To some extend wealth flows away from the dollar into gold.
In China and India, gold is a keeper whereas dollars are not. Ultimately the two fastest growing economies may set the standard and history as to which asset will measure wealth and so far gold comes well ahead.
Did you know?by Steve Austin
Gold ingots are bars of pure gold that were cast in a mold, unlike gold coins which are stamped under a press. They have this rectangular shape simply for convenience of transport.
The weight of gold ingots varies from a mere gram to several kilograms; the "London Good Delivery Bar" weights in at 400 ounces, or 12.5 kilos. At today's price, each bar is worth nearly $300,000!
Is there a "peak-gold" like there is a "peak-oil"?by Steve Austin
- 2007/06/01 Oil prices have increased significantly in recent years, due to a market condition called "peak oil",
whereby consumption outpaces production and new discoveries. Spot Gold price has increased also, but is this increase tied to the same market conditions as crude oil?
Gold and oil market dynamics differ in at least one way. Unlike manufactured or petroleum products, gold's price fluctuations are not tied to its extraction costs. You may have read a different story in the press, but the floating volume of gold
(the amount of gold that would arrive on the market if its owners decide to sell it) at around 20,000 tons exceeds by far the 3,500 tons mined each year. Furthermore, trading prices currently at around $700/oz are multiples of actual extraction costs in the $150/oz range.
Like Oil however, the consumption of gold by the jewellery, electronics and manufacturing industries has surpassed gold extraction for many years now. But to counter-balance this, hundreds of tons of gold are issued on the market every year by central banks, which attempt to liquidate as much as possible of this asset considered non-productive. Why does gold rise? Gold is a "blue-chip", stable investment. Even more so than real-estate since one can move gold to a different location. Its price goes up when those willing to buy it outnumber those willing to sell it. The main three reasons why buyers seek gold are:
Uncertainty due to war
Risk of high inflation
Lack of confidence in the economy and its leadership.
Today, all three conditions are present in the US market. The Federal Reserve has been artificially deflating the US inflation rate but today's real, high inflation, is the leading cause for high gold prices.
More dollars buy less gold because the dollar is weak against all major currencies, consequently inflation is high. In addition, liquidity flooding BRIC countries allow investors to invest in gold which they traditionally value.
As inflation increases and the dollar depreciates, count on the price of gold to increase again in the coming months.
Did you know?by Steve Austin Karats are often mistaken to be a weight measure used by jewelers. Instead karats are a measure of gold's purity.
Pure gold is too maleable to be used as-is by jewelers: a ring made of pure gold would bend and loose its shape and be impossible to wear. So jewelers "dillute" gold by mixing it with other stronger metals.
One Karat measures the fineness of gold in 1/24 part which is 4.2%. Hence a 18 karat gold ring is made of 18/24 parts of gold, or 75% gold and 25% other metals.
Metals added to gold are of cheaper value, so for equals weight, the price of a jewelery item goes up when the karat count goes up too.
You too can put the gold price dashboard on your web site, blog, or MySpace page. The dashboard displays the price of gold in real time. You only need to copy and paste the following code on your page and to follow our regulation below.
Code for Gold Dashboard:
<script type="text/javascript"
src="http://www.gold-quote.net/syndicate_usd.php?lang=en">
</script>
<noscript> <a href="http://www.gold-quote.net">To get the gold price, please enable Javascript.</a>
</noscript>
Dashboard Use Regulation
Please no inappropriate content. Use code no more than once per web page. Please redistribute code unchanged.
$30.68 / Gram
