ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Gold Market :: Gold Markets

Updated on March 26, 2012

How the "Books" Underpin World Prices

"Books" - Arabic for markets - are the traditional gold markets of North America and the Middle East. Today they are linked electronically with New York and London, forming an important part of the worldwide precious metals market.

The souks make up a thrid tier to world gold market demand, after large international investors and the small European or Japanese grass roots investors or hoarders.

The mood of the souks is a key indicator of gold price trands. The rise of fundamentalist Islam, for example, with its disapproval of material worth, reduced some of the traditional Middle Eastern demand for gold, but by 1989 Iran was again purchasing gold for the fabrication of jewellery.

Gold also plays a special role in India where demand for jewellery and marriage gifts is insatiable. The easing of restrictions on international trade in gold and the holding of bullion diminished the role of the Indian gold smugglers.

The growth area of the Far East has been the production of chuk kam, pure gold, jewellery for the Chinese market, in Hong Kong and in mainland China.

"Unofficial" markets, the souks, smugglers and small-scale hoarders around the world, add a measure of stability to worldwide demand for gold. Unlike major US or European players who may shift assets out of gold overnight, these markets are driven by centuries-old traditional habits that are not likely to change in a hurry.

Conclusion

Gold's performance in the 1990's raised questions about its usefulness as a hedge against anything short of complete chaos. But there was always a possibility of unexpected events sparking off a rush back into gold. It took only a small shift in confidence in paper secuities to dramatically boost the price of gold.

The role of fiat money in the economy paralleled with the lack of a gold standard made it inevitable that sophisticated investors would conclude that gold should be held until government gold holdings increased to cover the disparity of fiat against specie.

How Investor Sentiment is the Key to Gold Price Moves

The "bread and butter" demand for gold comes from the jewellery business, dentistry and the electronics industry. This consumes the vast bulk of all new gold production.

However, investor sentiment provides the "swing" factor that actually determines major price moves.

Interesting Legend

Rothchild's in London used to remove the wooden floor of their bullion room and burn it every 20 years to melt out specks of gold which had rubbed off bullion bars. With improved handling processes, this is no longer necessary, but the legend emphasises the high value of gold compared to its weight.

Conclusion

Other than in South East Asia, gold is a commodity rather than money or a money surrogate. Investor demand is the strongest single influence on gold's price. This price may change explosively when major geopolitical or economic factors upset world stability.

How Metal Market's Move :: What Determines the Price of Gold

Gold, like any other commodity, is moved by the laws of supply and demand. Demand may be broken down into:

  • Industial demand, mainly jewellery which absorbs over 80% of gold fabrication, and the electronics industry.
  • Dentistry
  • Investor demand, particularly in the nervous markets of the near and Far East, and the more sophisticated Western investor with an eye on the bullion holdings of governments..
  • The minting of official coins.
  • Medals, fake coinage and medallions.
  • And to a much lesser extent, purchases by central banks. Not all central banks are buyers though - some have been net sellers.

In the 1990's there was little investor demand in the West. 1991 showed the lowest addition to investor stocks for a decade. Selling in Europe and North America largely cancelled out any investment in the rest of the world. But continued moderate sales from the Communist countries, some success in Brasil in controlling inflation and an increase in sales of scrap gold from India and the Far East combined to keep prices on the low side.

Whilst interest rates were still perceived on the high side, had added to the factors depressing the price of gold. However, apparent stability in gold prices is easily disturbed.

Fears of hyper-inflation or widespread political instability upset the market.The current rises in the price of gold is the result of another factor - the divestment of gold out of government coffers and 'fiscal easing' (the printing of money without any backing) has meant that fiat money has less and less worth.

As fiat money value decreases you need more and more to purchase specie money (gold or silver) and hence the price (in fiat money terms) of gold, increases. With gold backing the US dollar to the value of 4 cents (now less) per dollar the lickelihood is that gold and silver will continue to increase in price for the foreseeable future.

_______These pencils are for your personal use for comments_____.

__________________PLEASE DO NOT REMOVE_________________

Comments

    0 of 8192 characters used
    Post Comment

    • HealthyHanna profile image

      HealthyHanna 

      7 years ago from Utah

      I keep getting this advice from financial advisors. I haven't understood it. You have explained it very nicely.

    • humagaia profile imageAUTHOR

      Charles Fox 

      7 years ago from United Kingdom

      Yes. And as above, keep what you have and add to it at the right price. Silver of any form may prove to be better than gold. It comes in more tradable form for small purchases.

    • shazwellyn profile image

      shazwellyn 

      7 years ago from Great Britain

      Thanks Huma - I have been thinking about this. It seems that people are stashing gold because of an uncertain future. Would you agree with me?

    • humagaia profile imageAUTHOR

      Charles Fox 

      7 years ago from United Kingdom

      Shaz it's all according to what you want to buy. If it is something relatively small then the smaller the bar the better (think about what change you will get - gold or paper money). The smaller bar, when buying, will have a larger percentage mark-up over spot price (but if gold is still rising in price this will soon be offset.

      As far as best value it is all according to what you buy and where you buy it -in gold terms you can purchase it in jewellery form (at boot sales, auctions etc etc - each gram has a value) in pure gold form you can buy 1 gram bars up to 1 kilo bars - in Germany you can buy small bars from gold vending machines - otherwise there are internet sellers (but use you usual discretion with these). If you have a refinery account you could buy gold dust and have it refined (but even greater care needs to be taken with this avenue).

      All in all my suggestion would be to keep any gold and silver that you have and not sell it. Even though the price is currently high the economic indicators point to it increasing (but check gold futures regularly).

      Any piece of gold or silver has an intrinsic value so in times of hyperinflation one piece of gold will pay for an equivalent amount of goods whatever the paper money cost. If a television costs the equivalent of 10g of pure gold now (say £300), it is likely to cost 10g of pure gold when the cost in paper money rises to say £3,000 or £30,000 (as in hyperinflationary times).

      Hope this helps

    • shazwellyn profile image

      shazwellyn 

      7 years ago from Great Britain

      If there was a collapse, would small bars be better to barter with than large? If so where would you get best value?

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)