Why Gold Fluctuates
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Why Gold Prices Fluctuate
Understanding Gold Price Changes
Gold prices have experienced significant changes over the years. In 2005, for instance, the price of gold had its largest annual increase of over $80. Observing the trends over the last 30 years, the fluctuations resemble a rollercoaster ride.
Factors Affecting Gold Prices
Investments in exploration and development encompass costs related to manpower and operations, including geologists, contractors, engineering, drilling, metallurgical testing, and economic feasibility studies. Gold mining itself demands specialized technology and facilities.
Several factors influence the volatility of gold prices:
1. Measurement and Extraction: Gold is measured in Troy ounces, which are 10% heavier than standard ounces. It is often found in sulfide-rich rock, where exposure to elements can create highly acidic water.
2. Cultural and Economic Value: Gold's beauty and malleability make it popular for jewelry, easily convertible into coins or bullion. Prices, when presented in non-USD currencies, are converted using the current foreign exchange rates.
3. Market Influences: Gold has recently exceeded $500 per ounce, driven by investor concerns over inflation. Historically, gold prices rise when confidence in paper currencies declines, offering a hedge against inflation. The strength of gold continues in both Asian and European markets.
4. Currency and Economic Indicators: Gold prices reflect its inherent value and the strength of the currency in which it is quoted. Costs related to mining are allocated based on stockpile values and include overhead, depreciation, and other expenses. Despite gold being a stable value store compared to fiat currencies, government influence in the market remains substantial. Nevertheless, adjusted for inflation, the real price of gold has seen little change over the past century.
Historical Trends
Since 1982, annual gold prices have consistently ranged between $300 and $450 per ounce. The potential for higher prices remains strong, with 2007 set to surpass the 1981 record of $614 per ounce.
In summary, the fluctuations in gold prices are shaped by a combination of market dynamics, economic stability, and investor behavior, making it both a valuable commodity and a strategic investment tool.
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