The largest demand for gold is in jewelry and investments. Gold is known as ametal that is easily used and has many industrial applications. Since gold is so durable andluxurious, many people invest in jewelry, stocks, and gold bonds. Considering the fact thatgold is considered a world-wide valuable good, many economies have gold reserves tohelp protect themselves in times of need.
Nevertheless, factors of supply and demand havecontributed to the decrease of the price of gold, which has reached an all time low since1978. This reduction has raised many concerns in the United States having them weigh thedifferent factors of the price, supply and demand, and consumption that may be affectingThe price change commands attention since gold serves to indicate price stabilityor inflation. Although, inflation is not as threatening in the United States because it ismore industrialized, the bigger fear is facing deflation with our countries gold currency.Gold averaged 294 dollars per ounce in 1998, when at one time the prices were in the mid$400-500 per ounce. Due to fact that gold prices have been so low, Central Banks havethreatened to sell their gold inventories fearing that gold is no longer considered theultimate store of value. Regardless, prices have continued to fluctuate in both directionsthroughout the year, but it is important to weigh the different variables that are having anThere are different factors associated with the supply and demand which havecaused prices to decrease.
First of all, the record low prices in the past year has causedinvestors to participate less causing prices to be determined largely on golds own supplyand demand fundamentals and the economic environment. The supply of gold declined byless than 2% during 1998. The price reduction started to impact the mine production byslowing the rate of manufacture growth by the end of 1998. When prices began toweaken, this caused many mines to shut down, leaving low grade ore in the ground. Thisalone is effecting the mine output and the cost to produce more gold.On the other hand, the sales of gold jewelry are increasing at a record pace, sincethe economy is strong, there are low gold prices, rising consumption rates, the emergenceof new discount chains, television shopping, and electronic chains (Haubrich, Joseph).
Thegrowing demand for gold jewelry helped push gold usage in the United Sates to a firsttime report of 428.4 metric tons in 1998, which is an 18% increase. Since consumptionhas been driven in the United States, our economy is expanding and consumers are spending more.
During the past year, according to the JCK national poll, over 150independent jewelers support the figures. They found that two-thirds of respondents(68%) said they had a sales increase over the past year, while the other two out of five(38%) claimed to have sales gains of 20% or more. Over all, the immediate gain forjewelry retail due to the lower prices was a 15 % increase.
Using the statistics from the Commodity Price Index, for the last 12 months in1998, it is evident that the second half of the years prices fluctuated. In the first part of1998, the gold price ranged from $295.90 – 297.49, although it peaked in April reachingto $308.40, which was the highest for the year. The price increase was due to higherdemand of consumers and the expansion in investments during that time period, in spite ofthe fact, prices did not continue to remain as high for the remainder of the year. In fact,the following month of May, dropped another $9.
01, having the rate of gold at $299.39.As for the second half of the year, prices still dropped but managed to stay in the low$290s making retailers prosperous. Regardless consumers were happy with the lower prices, many investors andminers have been struggling to feel the same towards the lower rate. Stocks have lost over90% percent of their investments in gold and have many investors wondering if the valueof gold is depreciating.
Miners too, are worried about the lower prices considering theyhave been the major producers of gold in the past and in future markets. The idea thatcentral banks have discussed to sell partial amounts of their gold reserves has investorsworried with hopes that demand will not continue to decrease.When evaluating the prices for the beginning of 1999, they have continued to beunsteady and low, although there is hope for an optimistic future foe higher gold prices.The price continues to range in the mid $250-290s since gold is rather abundant eventhough other nations released some of their reserves and placed it on the market. Thiscrude rate has caused some miners to be temporarily out of work and stocks are still verylow. The gold prices of April, averaged approximately $250 per ounce, and have remainedin that range the next three months.According to The Economist, the price of gold reported to increase at $260 perounce in August. Even though, more gold has been placed on the market the demand hadincreased in the past month due to agreements and regulations placed to control theamount of gold being released on the market.
Having a better understanding with whatmay happen in the future investors remain optimistic. By the end of September, pricesmade a positive change showing a first mark in the 300s, reaching a high of $315 perounce. Thereafter, prices in the month of October extended as high as $327 per ounce andhaving November prices fluctuating in the lower 300s. These price trends are stirringsome interest to investors and stock markets with hopes that gold will continue to haveIn a memorable essay, Milton Friedman wrote that millions of people all over theworld regard gold as money, if not the only true money (Haubrich, Joseph). This isone main reason why the price of gold commands attention especially since it is anindicator of price stability and the possibility of inflation. Gold is also used as acommodity, used in jewelry and by industry. It is important that details of supply anddemand do not affect the price its price.
It is essential to keep in mind the differentoutcomes the country may face from the mobility in the price of gold. Bibliography: