The Changing Prices of Gold

This article is submitted by Emma Thomson.

Following the invasion of Crimea and the subsequent heightening of tensions between Russia and Ukraine, there was an increase in the price of gold as investors took a cautious approach to the markets. For much of March gold prices were seen trading higher than previous months. As reported by Reuters, there was a dip for a few days in March when Federal Reserve chairman Janet Yellen suggested the US central bank may increase its interest rates in the next six months, meaning there would be an incentive for consumers to invest their money in banks and building societies.

Prior to that dip the metal had increased in value for six consecutive weeks giving a huge boost to the gold industry. The outlook for precious metal is bright with Gold futures for June delivery gaining 0.22 per cent to $1.314.40 an ounce. The price of investment-grade gold bullion has risen by 0.53pc since February 25, according to JPMorgan, reflecting its traditional status as a “safe haven” in troubled times. Julian Jessop of Capital Economics, the consultancy, said: “One of the few beneficiaries of the crisis in Ukraine is the price of gold.” However, he warned that this sort of “safe haven buying” was traditionally short-lived. The trend towards the markets buying gold came under the spotlight following the real possibility that major world players may have become involved in the war in Syria last year. At the time, many analysts believed the gold price will climb as investors turn to it as a safe-haven in times of geopolitical crisis. This may be the case but whether this will matter once foreign military action begins, or even if it never begins, is an important question.

Last autumn, as discussions surrounding Syria heated up the gold price climbed by as much as nine percent . However once the threat of involvement of the US and UK in military action began to subside then this increase dropped to six percent.

Gold reached its highest ever price when it went above $1.900 per oz during July and August 2011. The value soared by $300 very quickly and soon went back to that price meaning that there is always a chance that you will not always make money on gold.

History of war’s effect on the market

There have been many studies into why war or the threat of it has such an effect on the global economy. One of the enduring beliefs of the 20th Century and beyond is that war and its associated military spending has created positive economic outcomes for the U.S. economy – the world’s largest. This theory has been backed up by polling in America which shows a significant number of people believe that war and military spending has improved the economy. In one of the most comprehensive studies ever carried out on the effects of war on economics, the Institute of Peace and Economics found that the trend for a conflict boosting the U.S’s Gross Domestic Product (GDP) started with the Korean War (1950-53).

However, this theory is challenged by some including the 1946 book Economics In One Lesson by 5 Henry Hazlitt who introduced the Broken Window Fallacy to the world. He said that people would argue that if a vandal smashed a shop window that would aid the local economy as the shopkeeper would be forced to buy his new window locally. This money would then circulate around that economy. However, Hazlitt argued that the same shopkeeper would have spent his money elsewhere in the local economy, meaning the theory was flawed.

Where else to invest?

The fact is gold is most definitely seen as a smart investment by most but are there other places to put your money? The past five years of near global economic uncertainty has seen a surge in interest from people trying to find the best financial and investment advice. Investment trusts are a superb way to put your money into multiple shares so that you can spread your investment however you see fit, all the while keeping it safe if one investment falls.

There is also free, non commercial, consumer advice out there for people worried about how to look after the case with the Citizens Advice Bureau renowned for offering guidance. Many local councils now offer financial advice with some authorities even launching their own credit unions in a bid to stop people using loan sharks.

The Government’s political rivals have made much of the economic turn around being centered on a house price bubble in London and the South East but following years of doom and gloom, prices are finally started to rise last year. According to the Office for National Statistics, values rose by 3.1 per cent in the year to June 2013, compared to 2.9 per cent in the year to May 2013.

Confirmation comes from the Royal Institution of Chartered Surveyors (RICS), which says that prices are rising at their fastest rate since the pre-crash days of 2006. There are plenty of companies out there urging would-be investors to use some of their spare capital and buy property.

If you are feeling brave you could invest in stock and shares but before taking on the London Stock Exchange there are a few golden rules to adhere to for average investors. Investors need to ensure they are not paying too much money for brokers to purchase their investment, if you get a good dividend reinvest using a proper reinvestment plan and try to invest in the market at regular intervals. For investors of any experience it is important to get these rules right. New investors often get confused by complicated rules right from the start.

The online market is a crowded one so investors are urged to do their research and ideally do business with an organisation that they have heard of.

References

The Gold Industry Explained,” Accessed March 26, 2014
How the Syrian uprising caused gold values to soar,” Accessed March 26, 2014
Institute of Economics and Peace and a study into the Economy of War,” Accessed March 26, 2014
The broken window fallacy explained,” Accessed March 26, 2014
The best way to invest your money,” Accessed March 26, 2014
Free impartial financial advice,” Accessed March 26, 2014
Your guide how to make the best property investment,” Accessed March 26, 2014
How to make the best investment on the markets,” Accessed March 26, 2014

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