Gold Price Fluctuations

Topic Cover | Gold, Price, Fluctuations, Market

As a rule, the gold price depends on worldwide economic situation. Moreover, the gold price has always been an indicator of effectiveness or unprofitability of alternative investment instruments. Gold depreciated in the period of funds turnover and extensive use of different instruments of capital increase. On the contrary, in case of economic stagnation, downturn or recession, gold seemed to be the most stable and liquid instrument of capital fixation and its future saving.

The analogy can be drawn to the foreign exchange market: gold can be compared to the Swiss franc which is considered a safe-heaven asset to ride out high volatility.

In other words, when bulls are ruling the market, consumption is rising pulling all the economic sectors up, gold pales into insignificance. But it is temporary.... In August 1998 Russia was going through a tough period: treasury bills depreciation, oil crisis, and subsequent rouble devaluation hit everybody.

That time Russians trying to save their capital bought almost all gold at banks and did not regret it. Since August 1998 the price of one ounce has increased three times. Even though the 20% VAT was charged at that time, gold justified investor hopes. However, during that period individuals were able to buy gold only at Russian banks. Meanwhile, the price of one ounce formed on the internal market, and the price of gold was higher than on the world market due to a limited number of providers and high demand within Russia. Now there are possibilities for Russians regardless of crisis locality to buy gold on the world open market. It became possible not only because of financial and stock institutes’ development in Russia, but because numerous brokers appeared providing opportunities to enter the international markets.

As for the current crisis, it has fundamental features. It not only runs through the economic structure of different countries, but provokes recession as well. That is why buying gold is considered as one of the safest way of capital saving. Last year gold quotes surpassed the level of USD 1000. Prices of other precious metals are near the highs. First time for the last 30 years silver approached USD 21 for an ounce. Platinum and palladium rose in price up to USD 2,273 and USD 582 respectively.

However, later on prices of precious metals started declining, except for gold. Moreover, despite production downturn and persistent demand for gold among companies, gold hold steady at a high price due to its speculative and capital saving characteristics.

Other factors have influence upon the gold price. For example, the US dollar and the oil price. Meanwhile, the gold price movement is inversely related to the US Dollar and directly related to the oil price dynamics. It is explained by the fact that when the foreign exchange market volatility and the US Dollar rate are decreasing, gold appears to be an alternative investment harbour. While the price of an oil barrel is increasing, gold is the means of petrodollars accumulation.