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The History And Future Of Gold

February 20, 2014

The history of gold is an interesting one. Its use as a type of currency dates back to the fifth century B.C. Coins uncovered in Turkey from that period contained close to 100% gold alloy. Since the value of a coin was based solely on the amount of metal it contained, the country with the most gold coins was considered to be the wealthiest. Over the years, competition created by countries contending for the spot as the richest country in the world has had a direct impact on global expansion. Columbus and other explorers in the 1500’s were sent to the New World in search of gold; the California gold rush was brought on by gold nuggets discovered at Sutton’s Ranch in 1848.

The gold standard was used to back up paper money till WWI when it was abandoned. Reintroduced following the Great Depression of 1929, it went into effect after WWII when it was re-adopted by the Bretton Woods Agreement, which obligated most countries to convert the foreign holdings which backed their currencies into gold. The price of gold was set then at $35 per ounce. At the time, the U.S. held the majority of the world's gold so most countries linked the value of their currencies to the dollar, making the dollar the de facto world currency.

By 1973, the price of gold had gone up to $42 per ounce, causing a devaluation of the dollar. When people started selling their bills for gold, the U.S. government took action and agreed to remove the gold backing. The price of gold quickly shot up to $120 an ounce and has increased steadily since then, reaching an all-time high of $1913.50 in August 2011.

Gold Price Forecast

Analysts tend to shy away from gold price forecasts as gold prices don’t always follow the expected trends. Gold prices have dropped somewhat since its high nearly two years ago, but gold prices continue to fluctuate constantly making investing in gold a very risky endeavor. Day traders and seasoned traders with thick skin can still come out ahead by betting on gold futures but gold price forecasts are not always predictive of future prices. 

In fact, since gold prices generally move in the same direction as inflation, gold futures are used mainly as hedging tools for commercial producers. In addition, gold futures provide opportunities for portfolio diversification, as they act as an alternative to investments in coins, gold bullion, and mining stocks. Many investors continue to view gold as a safe haven because it has more or less maintained its value during economic and political events, while continuing to offer ongoing trading opportunities.

Rising gold prices affect world currencies and the higher prices are quite significant to the currencies of major gold-producing countries such as Canada, Australia and South Africa. A trader who believes the price of gold will continue to increase, can trade in the Australian dollar (AUD), the Canadian dollar (CAD) or the South African Rand (ZAR) instead of investing only in the US dollar, because the other currencies still have tremendous potential. 

The price of gold changes minute by minute and is generally fixed twice each business day at 10:30 am and 3:00 pm UK time by the London Gold Market Fixing Ltd.

Gold is traded on several financial exchanges, mainly Hong Kong, New York, Sydney, Tokyo, and Zurich. The London bullion market, however, has a greatest influence on the world gold trading markets. Trying to forecast gold prices is still a challenging undertaking.

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Adam is trading Forex for over 12 years he worked within global financial market sales and sales of financial and finance-related products, including 6 years with Merrill Lynch, He is certified in Fund Management and Investment Management by the U.K. Chartered Institute for Securities & Investment. To see his work as an instructor at the -  Learn how to trade, a Forex education training portal built by traders for future traders.

The 1849 Gold Rush sped up California's admission to the Union as the 31st state in that year.
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