Tuesday, May 17, 2011

Why have gold prices risen so much?

Which ever way you view it gold prices are still rising. Rising debt, falling monetary value, default, war, weak housing, stumbling markets and rising interest rates.

These are the current situations that proliferate at the moment.

It can be argued that the current gold price rise started in 1971, when President Richard Nixon took the United States off the Gold Standard. 

At that time Nixon realized foreign countries were hoarding more gold and silver-backed currency than could actually be redeemed by the precious metal's reserves that America held
Gold could be traded again and in 1971 gold prices were fixed at $42.22 per ounce but by February 1972, moved to $48.26

From there a steady rise would ensue to levels 17 times greater than this initial trading price. On January 21, 1980, the gold spot price reached $850 an ounce.

With interest rates rising some 10 percentage points in 8 years, we learn the correlation between the rises in gold prices was a compounded 33% for every rise of just one point in interest but during the same period

Stocks rose a mere 1%.

With all the crop of current Monetary, debt, war, weak housing and economy problems gold prices are going to be an attractive proposition for medium to long term investors.

It is even possible that gold will become the most sought after hedge available.