About Daily Gold Silver Price
Understanding the gold price, why it is where it is, why it declined by 40% from February 1996 to August 1999, why the gold industry got slaughtered and why the hedge funds made out like bandits, requires us to look at several aspects of gold and the gold market. As you will see there is no conspiracy against gold. The major decline in the gold price did not occur because of central bank sales or producer hedging, as many people believe. Instead, a proper analysis of the gold market, and an understanding of foreign exchange markets with the role played by derivatives, sheds light on the real factors that determine the gold price. These are not necessarily complicated matters as even enormous markets yield to basic economic principles. The research that underlies this article shows that: - the gold price is less sensitive to changes in mine production and jewelry demand than it is to currency exchange rates - the average international gold price, as measured against a basket of currencies, has not declined substantially during the last four years, in fact it is close to its ten year average - the decline in the US dollar denominated gold price is predominantly due to international currency problems that caused an abnormal amount of foreign investment in the United States - gold is money, it always has been and furthermore, gold has not lost its value as store of wealth- if the dollar devalues, as this paper suggests it will, the dollar denominated gold price should soar - U.S.-based gold mining companies probably offer the best leverage to the US dollar based gold price -this appears to be an excellent time to speculate on gold and gold stocks. [Editor note: While this entire series provides good insights, Chapter 3 stands out as particularly recommended reading material.] Chapter 1 - What is gold? Before we delve into the intricacies of the gold market, it would be useful to establish some common ground. You may not necessarily believe everything I propose in this chapter, but humor me. It is necessary to start somewhere and defining gold's role in our society seems to be an appropriate place. The physical properties of gold Gold is the most ductile and malleable element on our planet. A single ounce of gold can be drawn into a wire 35 miles long and gold can be hammered into sheets less than five millionths of an inch thick. Next to silver, gold is also the best conductor of heat and electricity and the most reflective of light. But unlike silver, gold is very resistant to oxidation. Gold is in fact one of the most inert metals that can be found. These properties are unique to gold and confer upon gold a very special status among the elements. Because of its unique physical properties, and the fact that gold is very scarce, it has long been a sought after metal. On average, there is less than 0.0001% gold on earth. To find gold is very difficult. To find a large enough quantity of gold so that it would be worthwhile mining it, is a rare occurrence indeed. Is gold just another commodity? During the past few years it has often been commented that gold has lost its value as a store of wealth and it now amounts to nothing more than just a commodity. Gold's physical properties are well suited for applications in the electronics industry. In fact, in 1998 just over 15% of the fabrication demand for gold was for industrial purposes while the other 85% was jewelry demand. But if most of the gold in the world is being used to make jewelry, we should first ascertain the nature of jewelry. Jewelry - commodity or money? Imagine living two or three thousand years ago and being a successful businessman, traveling
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