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Gold Market Macro and Microeconomics - Essay Example

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Your complete name Submission date Gold Bubble- Pricked! Since a dramatic appreciation in gold price from its nominal high of $850/oz in early 2008, among numerous concerns in market, one of the most talked about is the gold bubble…
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Gold Market Macro and Microeconomics Essay
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"Gold Market Macro and Microeconomics"

Download file to see previous pages It is because central bank continues to increase money supply which has assisted spur the precious metal to this level. Furthermore, he argues that the gold is not in bubble as when one buys gold, it is more of insurance in the face of financial market problems and systematic failure (Qtd. in Chanjaroen).This research paper analyses and bust the myth that there is a gold market bubble. In order to understand the way gold market work, it is critical to understand the primary drivers of the precious metals price, in particular gold. The prices of precious metals, such as, gold, platinum, and silver are driven by a wide range of factors. These factors may include, debt levels, currencies, money supply, inflation, CDS spread, interest rates, and fabrication demands from other sectors, such a, electronics, solar appliances, and jewelry. Recently, investment demand proved to be the primary driver as investors used precious metals in comparison to the dollar as a ‘store of value considering inflation, general hedge, and currency depreciation. Signification demand arise from buyers in Asia, pension funds, diversification and investment demands from hedge funds, and central banks monetary demands(Durden). Debt Level Increase vs. precious metal (Bloomberg Industries) (Source: Durden) The major factors contributing to such demand are concerns about economy on a global scale, inflation risks, and risk of currency debasement. Moreover, gold has always been the preserve of the smart money. Risk aversion and wealth preservation concerns considering currency depreciation are the primary reasons that drive precious metal demand. However, there is no “greed trade” or public buying of gold in an expectation of guaranteed profits or return. This was the case with Nasdaq bubble or recent real estate bubble that had huge impact on western countries. Retail demand as a result of hype is negligible; however, it is increasing. Moreover, increasing demand on global level is dealt by very small supplies as supply is slightly lower than 2001 (Durden).Furthermore, historical context provide ample evidence that gold’ resurgence has a long way to go. Gold’s momentum does not owe anything to fear-driven speculation or manipulations, but a protracted reassessment incident for an international currency that has been sent to the wastebaskets before (Barker). The above data is presented by Eric Sprott in the Casey Research Gold and Resource Summit. The date clearly reveals that a very substantial part of world’s wealth has always been preserved in the form of gold throughout twentieth century (Qtd. In Barker) Scrap supply for 2011 is expected to lower than the last years’. In the whole world, only 0.9999 of pure gold has been mined ever. Therefore, gold prices will be highly appreciated if even a fraction of global capital and currency market flows into gold (Durden). Global Gold Production (Bloomberg Industries) (Source: Durden) Another factor is that substantial short positions are occupied by only a few Wall Street banks. The Gold Anti-Trust Committee (GATA) has dealt with the efforts to lower the gold and silver prices. It may seem like an international monetary crisis primarily for dollar, euro, or both, but not an end game for sure. Considering the demand and supply of gold market, it is critical to consider these facts and figures as they debunk the idea that gold is in bubble (Durden). Declining US dollar ...Download file to see next pagesRead More
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