By Geena Paul
MUMBAI: Gold is the hottest commodity that has been luring investors across the world even though almost all the countries are undergoing effects of a severe economic meltdown. Analysis have predicted that gold prices may touch $2,000 by the end of 2009. But it may be a prediction gone wrong. Gold prices may crash soon and it may be end the of the gold rush.
Traditional wisdom says everything which goes up has to come down. If that is so, why gold prices are not coming down. In fact, it is high time gold prices crashed!
When gold prices soared unprecedentedly in the past it always came down crashing, making the yellow metal holders to realise that after all it is just a metal which has only ornamental value — and a very little industrial use.
So, it seems the gold rush and the madness for the yellow metal will soon see an end with stock markets across the globe finding their ground and showed signs of recovery in the past few sessions.
If you check the immediate past, it took hardly four months for the Crude Oil prices to crash and fall with a thud — from $147 a barrel in July to $40 in November 2008. And by any comparison, oil is a much more important item for the world than gold. Fuel is needed for everybody to drive cars, heat homes, cook food and so on. But gold is not needed for you to survive whereas oil is a must for anybody to live in this world.
At this moment it is better to know a bit about the history of gold. Ancient Egypt left a rich legacy of gold. Hieroglyphs stretching back to 2600 BC describe gold, which was considered by the ancient Egyptians to be a divine and indestructible metal, and was associated with the brilliance of the sun. Ancient Egyptians even believed the skin of their gods was golden.
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Gold was just as central to ancient Greece as ancient Egypt, but in a way that seems more familiar to us today – as a primarily financial commodity. By 550 BC, the Greeks had started mining for gold throughout the Mediterranean and Middle East regions, and for a long time thought it was made from a particularly dense combination of water and sunlight. In 344 BC, Alexander the Great crossed the Hellespont with 40,000 men, beginning one of the most extraordinary campaigns in military history.
Included in the spoils of war were vast quantities of gold from the Persian Empire. It wouldn’t be the last time that Gold would be at the centre of bloody international conflicts.
And civilizations continued to witness more wars for gold and that race is still continuing.
Now, gold has the only one use which is for adornment. But, till about 500 years ago, it also had value as currency. But around the 16th century, paper currency started flooding the world because gold is very dense and heavy.
In the 21st century, there are specialised uses of gold in tiny volumes for scientists working on fuel cells, or semiconductors, or heat resistant fabrics. Gold is inert, it doesn’t decay. But researchers in labs don’t set the price of gold.
The gold gained its present status after World War II, when almost all economies collapsed and only American dollar had some value.
So, economists across the world decided to link all currencies to dollar and America promised to buy gold at $35 per ounce from anywhere. So, the US Fed Reserve had linked dollar to gold. America then had 75% of the world’s yellow metal. This American ‘rule’ continued for 37 years. In 1968, America was bleeding in Vietnam and Europe had consolidated. Asia, especially Japan, was emerging as a manufacturing powerhouse. US inflation was soaring. Then US decided to break the dollar-gold link.
A new law was enacted and America stopped keeping gold reserves for the dollar it prints. The dollar became a freely-traded currency and gold prices shot up to more than $40 per ounce in London. Through the 1970s and 1980s, the world was clobbered by two oil shocks that hiked Crude Oil prices by 15 times, high inflation and unemployment, and low growth. People turned to gold for value. The price of gold shot up from $40 to $850 per ounce, a return of about 30% every year.
But, after 1980, normalcy returned and gold fell back to $250 per ounce and stayed there for nearly 20 years. From 2002, gold started climbing and now it’s right up there looking all pricey and out of reach.
Is it not the ripe time for gold to come down to reality. It seems so. So the time is round the corner for gold to crash. SO THE BUBBLE IS ABOUT TO BURST.
India is the world’s largest hoarder of gold. It’s reckoned that the stockpile of gold here now is more than the 8,000 tonnes stashed away in the US treasury’s vaults. Unlike the US, where the government owns most of the gold, India’s government owns only 350 tonnes. The rest is in private hands. So, it is time for Indians to worry about the fate of gold.
