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Gold Price is Playing Roller Coaster Research Paper

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Updated: May 13th, 2022

Applications of gold

Gold is a precious mineral that was discovered many years ago. Initially, it was not considered unique and therefore people never valued it. They only used it to make ornaments and other household goods. Its value was appreciated as time went by and people began to admire the ornaments and tools that were made from it. During the time when gold was discovered people normally carried out barter trade and it was not one of the desired commodities during this time.

In barter trade, people majorly exchanged food stuffs and since gold was not food it was an uphill task for gold bearer’s to find someone for them to exchange it with. Another reason as to why gold was not used in trading is because people had not attached more value to it; hence exchanging it for something else was seen as a big loss and since nobody wanted to incur losses or remain with the gold forever people never wanted to exchange it for their foodstuffs and other relevant commodities (Hobson 2010).

Monetary Exchange & Gold Standard

Money was invented to counter the challenges of barter trade such as lack of double coincidence, the indivisibility of the value of the exchanged commodities and poor characteristics of some of the agricultural commodities. Money was mostly available in the form of coins made from a variety of minerals mostly metals. Gold was one of the metals used to make the coins and since people did not value gold as compared to other minerals, gold coins were not considered that valuable. Thus, they were not majorly used in the currency trade.

Gold coins were not majorly used due to the scarceness of the mineral thus enough coins could not be made. The scarcity was because of the technicalities that were involved in mining and extracting of the gold. This is the reason why people opted for coins made from other minerals that were easily obtained.

The monetary policy is concerned with the supply of money. According to the policy, enough money should be in circulation at any particular period. The policy aims at regulating inflation and deflation issues. The policy was used in regulating the supply of gold coins when they were in use but the coins were usually scarce and the policy was rendered ineffective. This was as a result of lack of enough gold to make more coins for circulation.

Balance of payment is concerned with exports and imports. In a country with a good economy there should be a balance between its exports and imports. Unfortunately very few countries in the world today can achieve that. The world gold standard worsened the balance of payments for most countries. As a result of this standard some countries exported more than they imported while others imported more than they exported (Tcha 2006).

Investing in Gold

Investing in gold related ventures was not one of the favorite options for most people at the time of its discovery. Direct ownership of gold was not of interest to people as they considered gold to be valueless and gold exchange-traded funds were also not pronounced. Traders were not willing to exchange whatever commodities they had with gold.

Gold mutual fund refers to the act of investing in gold mining companies. When gold was discovered not many people were willing to hold shares in gold mining companies and thus those companies had a hard time raising the required capital. However, as time went by more people were ready to invest in those companies as they later discovered the value of gold.

Gold stocks are share stocks whose value depends on the value of gold. Usually the shares traded in this market are from companies that deal with gold. The junior gold stock was one of the most feared investments that one could make. Investors were not ready to risk their funds in the junior stock exchange. They opted for other investment avenues making the stock exchange unpronounced in the society.

The Development of Gold in Recent 20 years

Today gold is on demand as most people have realized its value. Gold options are contracts that have gold features as the underlying assets. Such contracts were avoided like plague. However, today people are ready to enter such contracts as they tend to give the desired returns since the price of gold has been rising with time due to the rising value that people have attached to it.

Gold is usually given out as a gift whenever one does something impressive in society. Athletes who win given races in organized sports ceremonies are awarded gold medals. This is one of the reasons as to why the value of gold has been increasing over time. The gold price suddenly fell below $1400 on April 4, 2013 and sank to $1180 on Jun 27, 2013. This can be attributed to the rising value of the dollar and other currencies. Nevertheless, the price of gold is likely to rise over time as people are finding more uses for this precious metal. The currencies are also likely to fall in value due to the poor monetary policies that are in place (Bordo & Schwartz 2004).

Forecasting the Price of Gold

Most currencies today have a high value. In future it is more likely that the supply of these currencies will increase. This will lead to a decrease in value of the currencies at a high rate and this inflation of currencies is likely to add more value to gold. The value of gold will go up since more money will be required to buy a given mass of gold.

The scarcity of gold is also another factor that will cause the rise in its value. The mining of gold is a challenging exercise as deeper mines are dug. Companies that engage in this exercise therefore tend to sell the gold at a high price. These logistics are not likely to change in the near future although the currencies will continue being inflated. Thus, the price of gold will always be rising unless the inflationary issues of currencies are addressed by the relevant countries.

The demand of gold is another factor that will contribute to the rising price of gold. Unlike past days, today gold has a high demand because of the many uses it can be put to. It is likely that as days go by more uses for gold will be discovered. This will lead to the rise in demand for gold. From the demand law of economics a rise in demand will lead to a corresponding rise in price. This explains why the price of gold is likely to rise with time. Supply is another factor that will see the price of gold rise. Very few companies today indulge in the exercise of mining gold. This might be because of the technicalities involved and the dangers that one is exposed to when mining gold.

Therefore, the limited supply of gold explains the high price of gold in the market today. Most mines will soon be exhausted and companies will also pull out of the mining ventures due to the costs associated with the exercise. Trying to find other mining areas will also cost more and there are few companies in the world today that will try to search for new gold mines and this will lead to a decrease in the supply of gold. The law of supply in economics states that a decrease in supply leads to a corresponding rise in price. Thus, the price of gold is likely to rise as its supply will decrease in the future (Tcha 2006).

Today, gold is used as an award to people who have clinched most coveted titles in the world. Sportsmen such as athletes are awarded gold medals after winning given races while football matches are organized from time to time and the winners awarded in terms of gold medals. During marriages spouses are awarded with gold ornaments as a way of treasuring them.

The sporting activities, marriages and other related ceremonies where people will be awarded in terms of gold are also on the rise since they are likely to be organized more often in future. As a result of these activities, more value is to be attached to gold that will lead to a rise in its price.

Most metals that are in use in the world today are becoming more scarce than gold. If this trend continues then gold is likely to replace the other metals in their uses. Gold will be used to make currencies that are being made of copper and diamond in the world today.

Gold will also be used to make weapons used in warfare since wars are becoming a day to day activity and nobody is usually ready to lose in such battles. Gold is finding more use in this area as more and more weapons are being made from gold due to its ability not to rust and lose luster and with this trend on, the rise the price of gold will definitely increase (Hobson 2010).

Statues of respected people otherwise known as monuments in the world today are made from gold. More people are rising to these levels today and it is expected to increase in the near future. Their countries will want to honor them by constructing their statues thus adding to the list of uses of gold. As more uses of gold are being discovered with time, the price of gold will also rise. Thus, from the analysis carried out and the trend that has been in existence for many years the price of gold will not drop but continue rising with time.

In conclusion, the events discussed above unfold the supply of gold will be less than the demand. The new uses of gold discovered each day will also increase its demand. Economics has its laws in action to regulate the prices of any commodity as its demand and supply change. If the demand and supply curves of gold are drawn at any time in one graph they will meet producing the equilibrium price, because the demand is likely to increase and the supply decrease then the equilibrium price of gold will also be rising. This clearly explains why the price of gold is said to be playing roller coaster.

References

Bordo, Michael, & Anna, Schwartz. A Retrospective on the Classical Gold Standard, 1821-1931. Chicago: University of Chicago Press, 2004. Print.

Hobson, Jason. Gold Prices and Wages. London: Routledge, 2010. Print

Tcha, MoonJoong. Gold and the Modern World Economy. London: Taylor & Francis Books Ltd, 2006. Print

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