The Rise and Fall of Gold

This is a guest post from Profit Confidential, a site dedicated to bringing real economic facts not told by mainstream media.

Although gold has proved itself as a hedge against inflation, and a safe haven during the times of economic uncertainty, its fall in the last couple of years has allowed its critics to question for the umpteenth time whether it was worthy enough of being called an asset class.

The proponents of gold have outlined the drastic decline in the value of gold, especially in the past two years. In August 2011, gold reached the highest levels of $1,921 per ounce. This was significant as only two years prior to that, the world economy had been hit hard by one of the worst economic turmoils in history.

The Rise

Frantic calls to dissuade people from investing in gold were made prior to the economic slowdown of 2008-09 as well. Those were the times when the world economy was in full-swing as sub-prime mortgages were doled out to applicants with unimpressive credit histories.

When the world economy was shaken hard, buyers flocked to have gold in their portfolio, pushing the gold prices from levels of $930 in January 2008 to reach an all-time high of $1,921 per ounce in September 2011. In a span of around three and a half years, gold had risen by approximately 106%! (chart courtesy: goldprice.org)

gold_price_2004_2013

The Fall

Proponents of the gold will point out that the drastic fall of gold since then has matched its spectacular rise after the recession. After reaching the highest levels in August, 2011, it has been a downward trend for gold, and it has tanked by around 30%, and is currently trading at $1,291. (chart courtesy: goldprice.org)

gold_price_2012_2013

Part of the decline in the value of gold has been attributed to the statements from the Federal Reserve on Quantitative Easing (QE). In fact, many experts believe that QEs played an important role in giving boost to the gold rally during the recession. However, when the Federal Reserve indicated in February 2012 that the possibilities of another round of QE were remote, gold lost $75 per ounce in one hour. Many experts believe that it was the turning point in the correlation between QE and gold prices, and since then, no amount of assurance on Fed’s behalf has been able to curb the fears of the investors. Gold prices have been declining steadily, but many are hopeful that the prices can bounce back to reach the levels of 1,500 by the end of next year.

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