Why does gold have a stable price?

Nowadays, the demand for gold, the amount of gold in the central bank's reserves, the value of the US dollar, and the desire to keep gold as a hedge against inflation and currency devaluation help boost the price of the precious metal. Gold is a valuable resource that humans have coveted for centuries. While the price of gold can be volatile at times, it is generally considered a safe and intelligent investment. But that doesn't mean it's the right choice for every wallet.

There are a few things that those looking to invest in gold should remember and some misconceptions that every investor should be aware of. England adopted a de facto gold standard in 1717, after the owner of the mint, Sir Isaac Newton, overvalued Guinea in terms of silver and formally adopted the gold standard in 1819.If, for example, the central bank of France wanted to prevent the inflow of gold from increasing the country's money supply, it would sell securities in exchange for gold, thus reducing the amount of gold in circulation. The most important is that you cannot claim the underlying gold held by the fund, which, according to some investors, is contrary to the purpose of owning gold. Roosevelt nationalized gold owned by private citizens and repealed contracts in which payment was specified in gold.

Since new gold production would only add a small fraction to accumulated stocks, and since the authorities guaranteed the free convertibility of gold into money other than gold, the gold standard guaranteed that the money supply and, therefore, the price level, did not vary much. Despite the fact that no country currently follows the gold standard, many countries still maintain large gold reserves in the event of an economic collapse. However, history has shown that, in most cases, there is a positive correlation between gold and interest rates, that is, when interest rates rise, so does the price of gold. The United States, although formally had a bimetallic pattern (gold and silver), switched to de facto gold in 1834 and de jure in 1900, when Congress passed the Gold Standard Act.

Despite the fact that countries such as India and China consider gold as a store of value, people who buy it do not trade it regularly (few pay for a washing machine by handing over a gold bracelet). However, gold reserves reduce confidence in the United States' ability to exchange its currency for gold. Some forces affect the supply of gold in the broader market, and gold is a global market for commodities, such as oil or coffee. However, periodic increases in global gold stocks, such as the discoveries of gold in Australia and California around 1850, caused price levels to become very unstable in the short term.

This version broke in 1931 after Great Britain left gold due to enormous outflows of gold and capital. After the gold standard, gold has become more volatile, but the legacy of its stability remains with us. In addition to central banks, exchange-traded funds (ETFs), such as SPDR Gold Shares (GLD) and iShares Gold Trust (IAU), which allow investors to buy gold without buying mining stocks, are now the main buyers and sellers of gold.

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