Reasons Behind Gold Prices Increase

Global Issue Reasons Behind Gold Prices Increase January 2011 Global Issue : Reasons Behind Gold Prices Increase Table of Contents Page 1- Introduction 3 2 - History of prices 3 3- Reasons for price increases 3 4- World gold demand and supply 5 5- Forecasts 5 6- Conclusion 6 References Appendix 2 Global Issue : Reasons Behind Gold Prices Increase Reasons Behind Gold Prices Increase 1- Introduction Gold has been one of the most important metals that has occupied a major position in human's life; it was mainly used as jewelry and its use has developed along the history to include industrial production and investment. The precious metal has lost part of its brilliance after the Bretton Woods Agreement and

the end of fixing currencies exchange rates in terms of gold. However and after the recent increase in gold prices, more research about the history of gold prices and reasons behind their rapidly increase were initiated seeking a clearer view of its behavior through the past years. These high fluctuations in prices that had a significant impact on local and international jewelry markets have raised a world wide debate about the future of its prices and whether it will keep rising to hit new levels. 2 - History of prices After a relative stability of gold prices through the first half of the 20th century and till the 1970s, gold prices started to increase peaking on 21st of Jan, 1980 with $ 850 per ounce1 under fears of global war and Soviet tanks invading Afghanistan. Moreover, the decrease in the dollar value at those times has supported a strong demand for gold. Through 1990s and after the end of the Cold War, prices had a downward trend recording its hardest crash in 1999 with $ 278.55.However and since 2002, gold prices has rebounded till 2008 when it started to skyrocket, affected by the financial crisis, reaching near $1100 per ounce on 6th of Nov, 2009 for the first time in the history (See table 1 in the appendix). In 2010, prices have continued to increase and on the 9th of Nov. 2010, its price has recorded $ 1421 per ounce, a price was never reached before. On 23rd Nov. 2010, gold prices has sharply risen to record $ 1377.6 per ounce as a reaction to the north Korean attack on South Korea and the aggravation of the Irish debt crisis as a strong indicator for the trust of investors in gold as a safe shelter in such situations. 3- Reasons for price increases Gold prices have rapidly risen in the last two years recording unprecedented leaps in its rates with an obvious change in the patterns of gold demand with demand for gold as investment replaces the demand for jewelry. After turning into a widely used investment tool, gold circulation has become easier especially with the diversity of newly introduced gold investment channels making its prices more sensitive to fluctuations in demand and supply that are less effective with people holding it as jewelry for long times. This new situation has resulted from: 1 1 ounce = 28.3495231 grams 3...

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