Gold, a safe place
The price of Gold hit close to $2,000 and it pushed some buttons!
The price of gold is so high
the price of gold futures went up to almost $2,000
When the Swiss Banks put a cap on their Franc, it caught my attention, and gold was so high, $1,920. Gold was $333 in the 1980s and we thought it outrageous. People with money behave as though they have no reason to do other that put their money in a safe place, and what's just happened to the price of gold Swiss francs, is interesting because it's considered "normal" in times like these.
Competition for a Safe Haven
In hard times, a safe place means gold futures and Swiss franks. What they have something in common is they hold their value, and they are being purchased now because of that reputation. Gold, Swiss francs, and bonds all do well in times like these, times when banks and businesses fail, when people are out of work, very hard economic times indeed, and so they are called Safe Havens.
Because they are still attractive when profits are dissappearing, there is competition for them and their price rises. So bad times are good for gold, but maybe not so good for Swiss francs. Because the stable Swiss Currency has done so well, it has felt the effect of World money problems. With all the traffic to the Swiss franc (and while the price of Gold has gone up) the Swiss frank has been inflated. Most of us don't want to see a currency inflated.
What the Swiss did
and why the price of gold fell
Within the last two financially insecure years, the increased investment in Swiss currency caused a 33% inflation. The Swiss set in motion a plan to change that by "capping" the value of their franc, asserting a little pressure of their own to to stop the inflation and to fight back against world money issues. They are discouraging the rush to their money as a "safe haven."
The immediate reaction to the cap has been that the Swiss franc's value immediately came back down, an intended result. As planned, traders reacted, and the gold futures dropped 8.5% in reaction to the move by Swiss bankers. And the price of Gold began to fall, too.
Why gold jumped in the first place
Paul Krugman, an easy-going expert who I like, explains why Gold went up
Krugman's writing gives focus, and shows how a "specialist" looks at "these times."
On the 6th of September, Krugman wrote in detail about the nature of gold, and its value. He gives us a normal "demand curve", and explains normal demand for gold. With normal demand, investment rises to a point, but today's economy is an exception where gold is concerned.
Krugman looks at what's changed. He says that in times like these "investors need less price appreciation to have an incentive to hold gold." That means that when the market is flat, investors still want gold. A flat market has little return on other investments, and as of the last two years "expected returns on other investments have fallen." It is in reaction to the flat market that the price of gold has jumped. Krugman does explain that the rise in the price of gold in these circumstances is expected to be temporary.
I've brought you this article to explain some basics about gold and how the price of gold behaves in a stressed economy, but Krugman is writing about Inflation and Deflation, which might also be of interest to you, of course.
source: Krugman on gold
Looking at the markets. The price of gold fell. Bloomberg Commodities Futures reports gold at $1856.00 as of September 11. This, of course, is Sunday, and the price is a record of Friday's, September 9th's market close, or adjustments after the fact.
What are "futures"?
A buyer promises to purchase (and a seller promises to sell) a physical thing, a commodity, in this case gold, on a specific future date at a set price. This is a legally binding promise. Any such arrangement has an element of risk. It is a gamble.
Bonds do well in hard times
To see that bonds also do well in hard times, take a look at the bond market.
At 3:00pm ET, Monday, September 12, 2011, the word from Briefing.com" on YAHOO FINANCE was: "The stock market recently rallied off of its low in response to headlines that suggested Italy is in talks with a sovereign wealth fund from China about the..."
read more about "The Risks Of Sovereign Bonds"
Do you have a safe haven?
How to Read a Graph
Want a lesson on reading a graph? Here it is! How to read a graph.
Gold, Bull Markets and gold-price history
from the 1950s through the mid 1980s and up to the present
It's interesting to take a look at gold prices over time. When we went off the Gold Standard in the early 1970s the price of gold began dropping. The markets react as things change.
When we look at gold prices over time we see "bull markets," something we'd like to see NOW. A bull market is the result of economic recovery, economic boom and/or the public mind-set. Example, the bull market of the 1990s.
Graphs of the price of gold This article provides graphs of gold prices over time and up to the present. But it's done a little awkwardly, so be careful. The most recent period (gold line = 1999 to 2011) is super-imposed over the earlier period (red line = 1950s to 1980s). The object of this super-imposition is to make comparisons (accurate or not). Still it is useful to look at these graphs to see the history of the price of gold.