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Monday, November 17, 2008

Gold Price

The gold price continues to be in the news a lot due to the steady rise of the value of gold as measured against the dollar.

But what does the gold price mean?
The value of gold actually does not change much. What does change is the amount of paper or electronic money needed to purchase an amount of gold, most universally measured as US Dollars (USD) per Ounce.

The gold price is also measured in 'price per kilogram' and 'price per gram'. For example the jewelry industry usually is concerned with the price of gold in grams whereas investors usually watch the price per ounce.

For over one hundred years from 1800 through to 1970, the cost of gold remained fairly stable with a very gradual rise from 19 US dollars an ounce to 38 US dollars an ounce.

Then in 1975 there is recorded a jump to 175 US dollars per ounce! This is a massive jump in just a few years. Not only that but in 1980 there was an even more massive jump to 641 US dollars an ounce.

In 1985, however, it plummeted by almost half and was steady in the 270 to 425 range until recently when it started it's march upward again.

However, whereas in the 1980s there was a dramatic rise, this time, so far, it appears more steady.

What does the rise in the gold price mean? Does this mean that there is less faith in the US dollar? Or is it just that people prefer to own something more solid than paper currency?

It was pointed out recently that if the US reverted back to a gold backed currency then, with the vast quantity of paper money (dollars) currently printed and in circulation, then it would take $52,000 USD to purchase one ounce of gold.

That gives new meaning to the word inflation!
It seems evident that the gold price demonstrates people's confidence in gold much more than in the dollar and, for gold owners, that can only be a good thing.

It is likely that in these economic and troubling times people will seek something that remains stable. And gold has a tradition of being stable come what may and, what ever the gold price, people will certainly be willing to pay it.