Economy And Politics And The Price Of Gold
The Effects Of The World Economy & Politics
On The Price Of Gold
Two important factors drive the global gold market and influence price of gold. These factors are politics and the state of the world economy. Political factors that have affected the price of gold over the last three decades include war on terrorism, India dispute with Pakistan over Kashmir and fall of communism as characterized by fall of Berlin wall in 1989.
Central bank policies affect gold prices
Gold remains immensely valuable to all governments on planet earth. All central banks have large reserves of gold. In some countries, this precious metal is the currency of last resort when paper money becomes dysfunctional. Therefore, there is a correlation between world economy and the price of gold because central banks play a core role in global finance. This institution determines fiscal and monetary policies that affect the economics within a particular jurisdiction. Some of these policy matters can have an impact on price of gold. The well-informed investor always keeps an eye on what the leading central bank chiefs are saying and the latest updates from these institutions. Of critical importance are European Central Bank (ECB), Federal Reserve and the Central Bank of China. These three banks hold the largest reserves of gold. If there are rumors about increase of reserves in a particular financial year, price of gold will either move in a positive or negative way.
Global economic fears and the price of gold
Fears concerning world economy could have an impact on the price of gold. Causes of these fears are a multiplicity of factors including anxiety about global slowdown and the fear of the spread of dangerous diseases. Economic aspects like global fall in demand as evidenced by global consumer index hitting historical lows are likely to affect world economy and the price of gold.
Euro zone situation and the price of gold
For those who are interested in the price of gold, euro zone is one of the regions to watch. This is the biggest trading bloc in the world and is comprised of some of the strongest economies in the world in including Germany, France and United Kingdom. Euro zone policies such as immigration are likely to have a broad impact across an array of markets in the world. Market for gold either spirals downward or assumes an upward trend upon announcement of Euro zone policies. Establishment of the Euro as the single currency of the European Union influenced a variety of industries across the world. Europe is an important part of the global economy. It is also one of the most important political blocs. Therefore, what comes from this continent is worth the attention of a serious gold investor.
Geopolitical threats have an impact on the price of gold
A person who has invested in precious metal knows that there is a relationship between politics and the price of gold. Major happenings in the political scene, usually creates instantaneous flow of gold into money. This is because gold is the ultimate buffer against the most adverse political situations. During the major world wars of the past, many people stepped up their reserves of gold.
Analyzing the topic of politics and the price of gold from a geopolitical angle brings to mind many interesting perspectives. The world is a closely-knit community of countries. Therefore, what happens in one country can affect another nation in one way or another. Generally, geopolitical threats cause the price of gold to rise. The price of gold climbs when there is a geopolitical crisis because investors turn to it as a safe haven.
War and the price of gold
Murmurings of war and real war in the ground affect prices of commodities such as gold and oil. Analysis of politics and the price of gold can take into account the issue of foreign military intervention. Financial scholars hold different opinions concerning how military intervention in another country affects price of gold. In the past, there have been political scenarios where military of US has intervened in foreign conflicts. In some of such scenarios, price of gold has remained constant. During some military campaigns, the price of gold takes a tumble while in some circumstances there is an upward trend. It all depends on other surrounding issues and the prevailing geopolitical issues in other parts of the world.
The Middle East is a hotbed of political conflicts. Events in this part of the world influence price of gold. The peak of gold prices in the last thirty years occurred during the height of Middle East conflicts in the 90s. Wars in gold producing countries in Africa usually have an impact on price of gold.
Rumors of war
Rumors of wars can affect the price of gold. As rumors of a war between Israel and Iran grew in November 2007, the price of gold reached a 27-year high. This was after many countries issued travel warnings to their citizens against traveling to Iran.
Gold and the cold war
Discussion about politics and the price of gold will only be complete after highlighting how cold war influenced price of gold. During the cold war, central banks amassed huge volumes of gold. This caused price of gold to rise. During the soviet inspired cold war, gold assumed a central role in the global economy and price of gold was one of the most important economic factors.
Geopolitical dynamics such as terrorism, war and foreign intervention have an impact on the price of gold. Policies of the Federal Reserve and European central bank are also worth noting so that to predict how gold prices will move. Rumors of war usually have the effect of causing spikes in gold prices.