Wall Street however has started referring the “Gold” as a commodity instead of currency. Yet its role of standard of value and unit of value continues to be in action in rainy days such as economic crisis and war. This probably may be specified as a time of peace. But in fact, this is the time of external peace because internal consistency is jarring nowadays.
While studying the effect of economy and gold prices n USA, we may reach to a conclusion as, “This precious metal can restrain its value under numerous circumstances”. It is an admitted fact that it can itself regulate and stabilize its value under the bad times. It is due to the fact that it is not directly linked to the price indices. History is evident of the fact that only gold retains its value in post disaster situations even the fiat money standard lapses and loses its value. However it depicts the health of US economy by indicating the fluctuations in trends. A simple relationship may be explained as, “Whenever, the US economy faces slump, gold prices in USA start increasing”. The relationship justifies and seconds the above mentioned phenomenon which is pertinent to mention and study due to verity that in recession times, the demand-supply equilibrium gets disturbed. On the contrary, instead of descending trend in demand, it gets increased because the government starts acquiring gold to beat the slump. In this way, the quantity of gold in domestic market becomes lesser and lesser. Following figure may better explain the whole phenomenon.
Some Historical Evidences are cited below to justify as the theory in action:-
- Asset Bubble 2008 and gold prices in USA
After the occurrence of the mortgage crisis, the gold prices reached all time high point. Afterwards, the analysts curtailed the whole situation in to a phrase that “Gold is an Ultimate Bubble”. This enhances the scenario of government’s risk management measures.
- Eurozone Debt Crisis 2011
In 2011, it was found out that gold prices in USA hit all time high point to $1,895. The reasons were explained as the poor job report to fed, and the ongoing eurozone debt crisis. It is very pertinent to mention that shortage of gold at time was observed world-wide because all emerging economies including china and India were acquiring more and more gold from international market. This was evident from the high gold prices in USA and almost throughout the world.
- Commodity Perception Bubble 2009
In 2009, due to lower gold prices in USA, the investors perceived that the gold and other precious metals will remain lucrative for speculative purposes. In that case, investors started buying it more as a fruitful source of investment. As a result, when the bubble busted, numerous investors lost their savings and faced a lot of loss which caused a serious slump in exfoliating manner.
- FED ends QE2 in APR-2011
In order to take revamping measures, FED acquired a significant quantity of gold which made the gold prices to set a record. However, it caused the interest rate lower for another coming year to motivate the investors to get loans and to make them participate actively in economic functions.
Current Scenario & Future Outlook:
The economy and geopolitical activities are under control in case of US economy after ceasing the war in Afghanistan and Iraq. The position is now pretty much clear as per the anticipations and forecasts of analysts regarding gold prices. Economy is supposed to grow at noticeable extent while the pertinent relationship seems to exercise its theoretical assumptions once again by declining the gold prices in USA in FY-15.