Gold is a commodity which distinguishes itself, metal. It's both a means of exchange at the same time or a currency and a commodity. That is nothing new; the role of gold in the world transcends borders, cultures and time. Gold's history is as rich as the precious metal itself. Gold is precious because of its nature that is limited and finite. Today every ounce of gold created in the history of humankind still exists.
Therefore, gold is a constant that outlives each human being but its value, its luster, and its heritage have been passed down for millennia.
Gold in Background
In modern times, gold has regularly acted as a hedge against inflation. It is a resource which investors and traders have turned to through times of fear and uncertainty. The U.S. dollar is the initial currency of this planet, so commodity prices should also follow dollar prices. Gold is no exception.
There is a clear price relationship between the value gold and dollar prices. Therefore, gold in dollars is sensitive to the value of the dollar against other currencies of the world. Gold is a global way of exchange. Therefore, as a store of value to individuals in countries that have declining currencies, gold functions in different nations.
When the USA was gripped by fears of inflation, Gold rallied to highs of over $ 800 per ounce in 1979/1980.
During that period the value of the dollar dropped. After that inflation scare, gold retreated, and for at least two decades it traded below $500 per ounce, reaching highs of $252.50 at 1999.
Gold began a massive rally in 2006, which took the price to all-time highs of $1920.70 on the active month COMEX futures contract in mid-2011.
A global financial crisis and a weak U.S. dollar led to the appreciation of gold. By 2011, gold had become a mainstream investment vehicle. But, after that summit, the price of gold fell, and by the end of 2015, the price stood at $1060.20 -- a decline of nearly 45% in four years. Other commodity prices fell, and 2015 was a year in which many commodity prices declined.
Among the factors pushing gold lower in 2014 and 2015 was a sudden sharp appreciation in the value of the U.S. dollar. While gold dropped in dollars, it rallied in currencies like the Russian ruble, Brazilian real along with other international exchange instruments that declined from the dollar. This tells us that gold didn't fall. In reality, although gold dropped in 2014 and 2015, other commodity prices dropped more -- its value was held by gold even though the dollar price dropped.
Every year, there is approximately 2,800 tons of gold manufacturing across the world. Supply and demand tend to balance one and other. Industrial and manufactured need (jewelry) for gold is usually around precisely the same level each year. Therefore, hoarding or dishoarding dictates this path of the price for gold's chief determinate.
There is two different kinds of hoarding, private and official sector. Gold is held by central banks across the globe as part of the foreign currency reserves. Central banks currently hold over 30 percent of all of the gold produced from this world's history as part of those reserves.
It puts stress on the price of the precious metal that is yellow when central banks, or authorities, are net sellers of gold. We saw this in 1999 when the Bank of England sold half of the country's reserves. Net selling place downward pressure on the price of gold -- that is part of the reason that year, that gold traded to almost $ 250 per ounce. Central banks publish their movements in the gold market it is easy to get a handle on whether there is purchasing or selling of gold by these institutions.
If it comes to the private industry, in years ago, we can measure whether there was more or selling from the general public across the world by the level of premiums on coins and bars.
A sign of demand by the general public is an increase in premiums and premiums for the physical metal are diminishing. Additionally, futures contracts have been available since the 1970s, but the market for futures is significantly lower compared to other investment vehicles due to the leverage and risk.
However, over the past decade, the arrival of ETF and ETN products like the SDPR Gold ETF (GLD) and many others, produced gold investments available to the general investing public through conventional equity-based brokerage accounts. Because of this, nowadays it's a lot easier to monitor supply and demand from the general public than it has in the past.
In 2015, the cost of gold in dollars transferred 10.46% reduced on the year. While gold declined in worth, many different commodities fared considerably worse. The prices of oil, copper, silver, and platinum depreciated over gold. It outperformed many other commodities, even within the metal industry while gold moved in 2015.
The uncertainty of the markets in 2015 was reassuring for gold. In early 2016, that doubt attained a new high in February and January. Something really interesting happened to the price of gold, while the price of petroleum and raw materials entered making new lows. It came out of the gate at 2016 and proceeded higher. In reality, as of March 11, 2016, gold has yet to revisit the closing price on December 31, 2015, at $1060.20.
At about $ 1255 per oz, gold's price stood on March 11, 2016. This is a rise of $194.80 per oz or 18.4% over the year. Gold also traded at a high of $1287.80 per ounce on March 11. On the ten months of 2016, gold not erased all of the losses of the preceding year, it's broken on charts. Premiums on bars and gold coins have increased, and volumes on ETF/ETN products and stocks have been growing indicating interest from the public.
Central banks were also big buyers of over 700 tons of gold in the interval between February 2015 and February 2016 signaling an increase in official sector demand for the metal. All signs of gold appear to be positive in 2016 awarded signals that are fundamental and the price action early in this year.
The economic environment was supportive of gold which has led to an increase in both private and official industry hoarding. Other areas of the planet and weak economic activity in Europe, China has caused banks to keep interest rates low that has stoked fears of inflation to the period of interest rate policy that was engineered.
In Europe, refugee crisis rising at the same time, war and violence in the Middle East along with a weak oil cost have improved uncertainty and fear. The main point is that there is a tremendous amount of uncertainty around the planet these days when it concerns the economic and political landscape. It has translated into more demand for the oldest money, gold or way of exchange.
Because this asset has a proven record of preserving value over 23, this and uncertainty breeds fear creates the ideal atmosphere. Following four years of a bear market in action in gold, 2016 has started off as a year where the yellow metal is reasserting itself as a mainstream investment advantage. Even if other commodity costs drop and even if the U.S. dollar appreciates, the current economic and political environment across the globe seems to be encouraging of their precious metal.
Gold has value in almost every currency in the world over recent months. The resurgence of gold might be an ominous indication for the value of assets in the future. The technical activity in the gold market tells us that the course of least resistance could be greater. Stress and doubt are leading to gold's resurgence, and a continuation of these forces could propel the metal to more new highs in the months and weeks ahead.