Most obvious to most of us, gold is one of the metals and has served as a symbol of wealth and a store of value throughout history. It also has been linked to a variety of symbolisms and ideologies.
The calendar year 2008 was an easy year to remember, as it marked a major economic shift everyone across the globe. In September of that year the global markets were on a path to what many analysts believed to be the brink of a meltdown. Not so coincidentally, before the September crash, the price of gold was on the rise achieving a nominal high of US$1,004.38.
Gold has long been a valuable commodity. It has been used throughout history as money by the Europeans in the later part of the 19th century, and also by the United States until 1971. As the U.S. system has now transitioned away from being backed by gold to a fiat currency (money that has value only because of government regulation or law), gold has assumed the role of the protector. When money is printed in times of economic uncertainty, the overall value of money is devalued as it floods the system. The reason gold is so valuable in these times is that is represents tangible asset, thus making it a hedge against inflation, deflation, or currency devaluation.
What makes gold unique to other commodities is the role that speculation plays in its market value. Unlike other commodities, the annual production is very low compared to the available quantity that is stored above ground. According to the World Gold Council, of the 2,500 tonnes of gold mined over the last few years, about 2,000 tonnes goes into jewelry / dental production, and the rest goes to retail investor and exchange traded gold funds. Even with this limited production, the price of gold rose 30 percent just over 2010, an example of how changes in public sentiment affect the price much more than annual production.
For those of us who aren’t seasoned economists and market analysts, we can look at the trend of gold in the market to gain an overall perspective on how people are feeling about the future in economic terms. Generally, we have seen that when gold increases in value, there is a feeling of unease. Conversely, as gold trends downward, it often coincides with a perceived return to stability in the market.