There have been several news reports lately about the rise in the price of gold. People often get excited when they hear this news, thinking they may be able to make some money if they invest in buying some gold. With all the advertisements on television pushing companies that buy your used gold for an enticing price, it is no wonder this recent news has begun to attract the interest of people looking to make a few dollars quickly. However, most people have no idea how the price of gold and the
The assumption that the price of gold affects the economy is false. In fact, it is our perceptions of the economy that can affect the price of gold. Therefore, people don’t realize that the price of gold is a good indicator of our economic health. Moreover, many people assume a high price for gold is a good thing; when it actually is an indicator of a struggling economy. High prices for gold indicate the economy is experiencing crisis or inflation, whereas low gold prices suggest a healthy stock market and economy. Although the price of gold rarely dips or rises drastically, the rise in the price of gold is associated with higher “investment” rates. People tend to look to invest in a commodity that is always in high demand when times are tough. Since gold tends to hold its value relatively well, people invest more in gold as last ditch effort when they see no reason to invest in other avenues for economic growth.
Our economy is based on a floating current system, in which the value of the dollar is priced relative to floating currencies of other countries. The fluctuating nature of a floating currency can make it more difficult to evaluate the economy by the movements in the value of the currency; making gold a useful gauge in the health of the economy. The value of the dollar is often influenced by changes in economies of other countries and the global trading industry; whereas gold remains relatively untouched by such changes. Typically, if the U.S. dollar is observed to devalue, the price of gold is observed to rise. When the value of the dollar rises, many people may not see the need for investing in gold and the price of gold will begin to drop.