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Blog Archives 5
 

The Gold Spot Price

The gold spot price reflects how well the world is doing. If the price is high and going higher, you can be sure that there is a major war going on somewhere, or that it is about to ignite, or that radicals, either individuals or movements, have gained control of important parts of the world's landscape.

It wouldn't matter if some Caribbean island, or some obscure African nation was undergoing revolution. That might drive the gold spot price up a little, but not very much. But when Iran did, or if Saudi Arabia did, then there is a reason for the gold spot price to soar. If inflation appeared to be creeping into the US or the European economies, if commodity prices, especially oil, were surging upwards, or if major markets, like US housing, were falling on bad times, then the gold spot price would also rise, probably significantly.

Why? Gold has a few uses, having to do with its incorruptibility, like gold mesh coffee filters, but the main one is as a store of value. Roman Senators held too much gold in the fourth and fifth centuries, because times were very unsettled, but also because they had nothing to spend it on. The effect, then, was to depress the Empire's economy even further, since most of the surplus of valuable assets was held in gold, stored, rather than used for transactions in the economy.

For more on the use of gold in the Roman Empire click on gold spot price Gold has other counterparts in contemporary society, such as collectibles of virtually anything: stamps, dolls, the clothes of movie stars, antique cars, but these other stores of value are not as easily exchanged as gold. The gold spot price will establish the value of an ounce of gold anywhere in the world where there are international markets, but Shirley Temple's lingerie might not have such an easily ascertainable value.

However, as in the late Roman Empire, sinking assets into gold, or into collectibles, reduces the amount of wealth available for transactions in other markets. It probably has the effect of reinforcing the downward movement of markets generally, since gold's price will also rise when recession threatens, thereby sucking demand away from the overall economy (the price rises because there is additional demand for gold).



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