Time to Buy Gold?

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Gold is the Precious metal that has given an enormous return to Investors in the Last few Decades. Now the question arises that will it give a good return in future. To understand this, we should know how the gold price increase and decrease.

History of Gold

In 1913 congress established a federal reserve to stabilize the value of gold. Before 1945, all the countries were able to exchange their money for gold. In 1945 the system was introduced, under this system, all the currency can exchange into dollars and the dollar is exchanged for gold, and only central banks are allowed to do this not an individual. Before 1945 the value of the gold was stabilized. But after world war 2, inflation increased, and printing money was required due to it value of the gold increased. Some countries in the European country started to redeem gold from the dollar because the value of gold was increased. At this point time, gold in the federal reserve decreased which created the problem. From 1960 to 1970 the federal reserve started printing more money and hence the inflation rise due to it the demand for gold also increased. In 1971 president Nixon had the gold standard off after this gold could not exchange for dollars. After fiat currency was introduced, here concepts like legal tender come in. The Fiat system we still used today as the government assigns value to currency declaring legal tender, this means government decides whether the medium or payment will recognize for financial transaction. Some fiat currencies like the us dollar and euro are recognized internationally and used for global trade because they are the currency of the largest economy country or world. The currency has value because the government enforces value or two parties agree it has value.

So, as Inflation increase then the value of gold increases similarly as Inflation decrease the value of Gold decreases.

Factors that affect the gold price in the Current Scenario

  1. Interest rate
  2. Crude price

1) Interest rate

Period 2019–20 was the worst year for the world economy, coronavirus has slowdown world economy, export was banned and domestic demand was wiped out. To Stabilize the economy, the Federal reserve had decreased the interest rate. Due to it, inflation surged. As the world economy is Stabilized now, there is fear of inflation. The annual inflation rate in the US accelerated to 8.5% in March of 2022, the highest since December 1981. Due to it, Fed has started to increase the interest rates to control inflation. According to economists, the Fed will further increase the interest rates to control inflation. Which is one of the bad factors for investing in Gold.

2) Crude price

Crude oil is one of the essential commodities which is used in day-to-day life. Crude oil is essential for the transportation of goods and services. According to the economist if crude prices increase by 10%, then inflation will increase by 1%. Recently due to Russia’s Ukraine war crude oil prices surged and now it is trading at around $110 per Barrel which is near an all-time high. US President Biden had announced that they are going to increase the supply of crude oil which may control the price of crude oil. So, crude Prices are Expected to Stabilize which can Stabilize Inflation. This may lead to a decreased price of gold.

Conclusion

We have seen some factors which may decrease inflation, So Gold price is not expected to grow in the short term, it may decrease or be in a consolidation period.