For centuries, in times of crisis traders preferred to invest in gold as it was always considered as a safe haven. History lovers know that gold was used as money and that the use of gold as a currency has only stopped just a few years ago. During the 20th century, gold often wasn't physically used for payment but in many countries it was customary to use the' gold standard'. The general meaning of –'a gold standard' is that you don't print money if there is no actual gold backing for it. The use of this method declined during the 20th century until it disappeared altogether in 2000 when Switzerland was the last to abandon it.
The sharp rise in gold prices began in late 2009, when gold prices crossed the 1050$ for the first time since '07 and stayed there for quite a period. The gold prosperity in light of the dollar's weakness at the time led investors to update their investments accordingly, which raised a number of key factors that influenced and continue to influence the market;
1.Investors – the interest in commodities, including gold from investment funds was the main cause for the rise of gold by 2009, returns on gold attracted more investors and increased the flow of capital into the market.
2.The dollar weakness at that time turned the gold to the safe haven we know today. Since the devaluation of the dollar still makes gold priced in dollars more attractive for other currency holders.
3.Oil prices - historically a high correlation between gold prices and oil prices was maintained, as investing in gold protected investors against inflation surge that accompanies the periods in when oil becomes more expensive.
4.Political tension - precious metal is considered an island of stability in times of global uncertainty. Geopolitical events on an international scale, including terrorist attacks, bombings, and murders can only make it rise. Market shocks, which can result in lower prices for most commodities and securities, have only a positive affect on the gold.
5.Central banks gold reserves - Central Bank holds his gold as part of reserves. Buying or selling of gold by banks could affect the gold.
6.Risks hedging - when gold prices aspired to 300 $ an ounce, option writers sold futures contracts promising to deliver the precious metal later. But when prices began to rise, sellers have suffered large losses and began to acquire own shares and futures contracts issued, in order to minimize the damage and to hedge the risk. This activity could affect gold prices, although recently this behavior has become less acceptable.
Today we can still see the effects of a number of factors specified when gold prices fall down more and more.
Since reaching its peak price in 2012 as it crossed the line in the 1790 Gold steadily declined and the dollar's strength in recent months led to a further decline in gold prices upwards of $ 180 an ounce last year. Adding on the political tensions in Europe with the recent situation of Greece, and the credit that will be given mainly to the world to broadcast the end of the world is indeed coming and even buying gold will not help the current situation.
Nowadays of uncertainty many investors hedge their accounts or completely get out of the market. More and more investors understand today that what was once etched in stone today is not necessarily true, it is proven that oil experienced manipulation, it is proven that currencies trading requires a high capability of coping with volatility and above all it is proven that the old safe haven or gold, also became an asset which is not necessarily a good investment.
The inadequate answer would probably come from the Americans bubble either carrying on or exploding upon interest rate changes and shattering, assuring gold prices will continue to fall and it is likely that the other markets will decline alongside it.
