Analysis & Discussion about gold Essay Example | Topics and Well Written Essays - 1500 words

Analysis & Discussion about gold - Essay Example People value gold and perceive it to a sign of purity and success. It is a metal used for jewelry, as investments and also as monetary exchange. Gold jewelers are considered to be the most successful business as they deal in something that has only seen appreciation in value most of the time. The value of gold is quoted in financial news and it fluctuates on daily basis. The gold rates are quoted for price in dollars for gold bullion which is the raw form of the metal. All countries publish gold prices in their respective currency on daily basis. Analysts link the value to the international gold rates quoted in the global markets. The market generally shows an upward trend of the gold prices but its fluctuations are based on the demand and supply of the metal itself. The sudden surge in the gold price is attributed to the shortage of this metal as compared to its demand. But some analysts argue that gold hoarders have led to artificial price hike at times. Although international laws and regulations keep a check on the gold prices and monitor its trading in a prudent manner. Gold was used as reserve currency for many decades. The use of gold coins and issuance of money equivalent to the gold reserve has been a very common in the past. In the second half of the nineteenth century an international gold standard was established. â€Å"The gold standard was created by the free market, the citizenry, and it operates to manage the supply of paper currency under self adjusting market system.† (Lewis 103) The use of gold as a monetary exchange was abolished and replaced by fiat currencies in the 20th century. Before currencies were convertible into gold but the declining gold reserves and the increasing international trading required currency interchange and thus currencies were made legal tenders by the government and were used for transaction and reserve purposes. â€Å"The price of a thing at any moment is determined by the quantity of money which has to be given for it, but ‘the quantity of money’ is a magnitude, which is in part determined by the nature of the unit of account employed.† (Gregory 4) The price of currencies previously was linked with gold and the purchasing power of the currency would be maintained in terms of gold. The same amount of currency, irrespective o f its metallic weight, whether it is a coin or a note, would be convertible to the same amount of gold. Thus the purchasing power in terms of the value of gold would be same and this determined the value of currency as well as the gold prices. But the scarcity of gold mines and deposits around the world has lead government to remove the gold and currency purchasing power equation and has made the paper currency a legal tender for all the transactions. The same amount of currency will have the same purchasing power or not cannot be guaranteed in the fiat - legal tender currency system. The gold has now become a commodity of exchange rather than i ts previous function of maintaining currencies purchasing power. â€Å"In today’s government controlled fiat money system, gold has lost its monetary function. However, gold has remained a kind of ultimate means of payment, protecting investors against financial crises and inflation.† (Belke & Polleit 13) People buy gold jewels, gold bars and gold coins from the investment point of view. The investment options may differ for