Effects of Increase in the Volatility of Gold Prices on Interest Rates
What effect will a sudden increase in the volatility of gold prices have on interest rates?
Agenda
History of gold Influencing factors of gold price Volatility of gold Conclusion
Historical development
Gold Standard
◦ Until 1914 + interwar years
USD Standard – Bretton Woods System
◦ After WW II until 1971
Since 1972: gold disconnected from USD
◦ Ordinary traded good ◦ Price determined by supply and demand
Revision: Influence factors of demand
Wealth Expected returs Expected inflation Risk Liquidity So what about demand and supply of gold?
Factors that influence gold price market sentiment and the commitment of traders to buy or to sell
◦ Gold is regarded as safe heaven investment in times of crises
Strengh of USD Central banks (monetary policy) World economy International conflicts and crises Demand for jewelry Demand by industry
Development of Gold Price
The 3 Gold Bear and Bull Markets:
◦ 1. The 1970s Gold Bull Market ◦ 2. The 1981 – 2001 Gold Bear Market ◦ 3. The Current Gold Bull Market (2001 -today)
Development of Gold Price
1970s Bull Market
1981 - 2001 Bear Market
Current Bull Market
Development of Gold Price
1970s Bull Market
1981 - 2001 REASONS Bear Market
Current Bull Market
Start of free gold trade Bad economic situation in Western countries ◦ low growth, high inflation, high unemployment rate Oil embargo, Vietnam war,…
Development of Gold Price
REASONS 1970s Bull Market Stabilized economy Controlled inflation „New Economy“ ◦ Bill Clinton
1981 - 2001 Bear Market
Current Bull Market
Development of Gold Price
1970s 1981 - 2001 REASONS Bull Market Bear Market Reduction of supply
Current Bull Market
◦ Still big demand
Increasing US government debt Weakening of USD Financial crisis 2008
Answer & Conclusion
What effect will a sudden increase in the volatility of gold prices have on interest rates?
◦ANSWER = short fluctuations in gold prices as measured
Agenda
History of gold Influencing factors of gold price Volatility of gold Conclusion
Historical development
Gold Standard
◦ Until 1914 + interwar years
USD Standard – Bretton Woods System
◦ After WW II until 1971
Since 1972: gold disconnected from USD
◦ Ordinary traded good ◦ Price determined by supply and demand
Revision: Influence factors of demand
Wealth Expected returs Expected inflation Risk Liquidity So what about demand and supply of gold?
Factors that influence gold price market sentiment and the commitment of traders to buy or to sell
◦ Gold is regarded as safe heaven investment in times of crises
Strengh of USD Central banks (monetary policy) World economy International conflicts and crises Demand for jewelry Demand by industry
Development of Gold Price
The 3 Gold Bear and Bull Markets:
◦ 1. The 1970s Gold Bull Market ◦ 2. The 1981 – 2001 Gold Bear Market ◦ 3. The Current Gold Bull Market (2001 -today)
Development of Gold Price
1970s Bull Market
1981 - 2001 Bear Market
Current Bull Market
Development of Gold Price
1970s Bull Market
1981 - 2001 REASONS Bear Market
Current Bull Market
Start of free gold trade Bad economic situation in Western countries ◦ low growth, high inflation, high unemployment rate Oil embargo, Vietnam war,…
Development of Gold Price
REASONS 1970s Bull Market Stabilized economy Controlled inflation „New Economy“ ◦ Bill Clinton
1981 - 2001 Bear Market
Current Bull Market
Development of Gold Price
1970s 1981 - 2001 REASONS Bull Market Bear Market Reduction of supply
Current Bull Market
◦ Still big demand
Increasing US government debt Weakening of USD Financial crisis 2008
Answer & Conclusion
What effect will a sudden increase in the volatility of gold prices have on interest rates?
◦ANSWER = short fluctuations in gold prices as measured