Taking a Look at the Gold Market

Gold, that soft precious metal, of a yellow color that is normally found in nature in its pure state and which for many is the most beautiful of all the elements; it provokes more than a little controversy when evaluating its true value, importance and usefulness in the world financial system. Since 2001, the market price of gold in US dollars has increased remarkably, contrary to its progress on the Future’s exchange. Therefore, keeping a physical reserve of this metal or gold coins seems to be an intelligent idea. The difference between the actual gold and stocks constitutes one of the new market tendencies that have been consolidated in the last eight years. The probability that those tendencies will vary isn’t very high. The increase in the price of gold since 2005 has been significant and therefore, technically speaking, you can speak of a “relative strength” of the metal.

While currency exchange rates (especially between the euro and the dollar) are more and more instable, gold has become a very stable investment vehicle. When looking closer at the gold market, it must be remembered that the financial crisis which was accentuated in 2008 was accompanied by a tendency towards inflation. Almost all stock, real estate and even raw materials (commodities) included, arrived at the lowest point in history. Gold, instead, went to the opposite extreme, reaching its highest price
and shows no sign of variation, at least not in the near future.
A fall in the price of gold from the present 1,212 USD (per ounce=28.3495 gr.) down to 700 USD in a year could be possible, just like a rise from 1,212 to 1,300 USD is also possible; but both of these variables are in keeping with the historical tendencies and so, regardless of these tendencies, it’s necessary to keep an eye on investing in gold’s relationship with other currency exchanges.
Without a doubt, the endurance and universality of gold present a monetary authority that no other currency possesses, which is the reason for the tendency to buy large reserves of actual physical gold. Virtually, no other form of inversion exists that is contemporaneously anonymous, portable and accepted on a world-wide level as a means of payment, as is gold. Perhaps many have their doubts about gold, since the keeping of gold by private citizens has been prohibited in the past; but this was, indeed, part of the past. These days, there is no government capable of prohibiting its citizens from having gold. A global intervention is improbable and very difficult to put into action. Investing in gold has always been recognized as the best refuge in time of economic crisis.
Several countries are actually returning to the past, proposing an exchange their own currency on the basis of gold (gold dinar) and have opened access to the gold market (China). The tendency is to return to monetary reserves, a quantity of a precious metal or other goods that the issuer of the currency keeps as a guarantee against the bills that have been printed, unlike what happens now with currency being issued against a Debt of State. The gold reserve means hoarding savings on the national gross product or GPD, of a part of the national riches produced, not destined for consumption or investments, which are the other two possible uses. The owner of the gold reserve possesses an equivalent value for coining a currency not guaranteed by an enforced rate.
The enforced rate is the non-convertibility between currency and its equivalent in precious metal (usually gold and/ or silver) in a monetary system balanced on the value of gold (aureal system). The decision to impose the enforced rate on currency was made in Italy in 1866 and lasted until 1881; it was the reintroduced on February 21, 1894. La Banca Nazionale del Regno d’Italia (The National Bank of the Kingdom of Italy) was obliged to concede 250 million lira, at the soft rate of 1.5%, to the Revenue Service in exchange for the enforced rate for bills issued from the bank itself. While the gold system was being changed to the present system on a worldwide level, the Bretton Woods agreement made in 1944, which provides for commercial debts being compensated by capital flow from countries with a surplus, was being adopted. In practice, State deficits are financed by issuing an amount of currency that is higher than the reserves of precious metal held by the banking institute without having to resort to a devaluation of the currency. The Bretton Woods Conference held from July 1-22, 1944 in the town of the same name in the jurisdiction of the city of Carroll (New Hampshire, USA), established rules regarding commercial and financial relations among the main industrialized countries in the world. The political basis for the Bretton Woods agreements can be found in the heavy presence of the state in the economy (banks and industry, both in the USA and the USSR as well as the rest of the world) and in the confluence of the key circumstances: the common negative experiences of the states during the Great Depression, the concentration of power in a determined number of states, the presence of a dominant power disposed and able to assume a directive/ coordinative role. However, the exchange market was still linked to gold. The system was effective in controlling economic conflicts and carrying out the common objectives of the states until the early 70s, with exactly the same conditions that had generated it.
The big turn-around came in concomitance with the war in Vietnam, which caused a huge increase in the American government expenditures and created a crisis in the system faced by the emission of dollars, the rising American indebtedness an the increasing requests for the conversion of the reserves into gold. The United States President Richard Nixon was pushed to announce the inconvertibility of the dollar into gold at Camp David on August 15, 1971. The American reserves were diminishing dangerously. This was the beginning of the financial crises that we are still feeling today. Physical gold, however, is still a way of maintaining monetary power as a prevention of the economic crisis and possible jumps in our finances.