Gold Price Charts and Analysis
For an understanding of the Gold price you must first understand how it came about and what determines it. If you just want the current Gold price it is on the side of the page.
Historical Gold Price
The price of Gold under a Gold standard was originally set by Sir Isaac Newton as Master of the Royal Mint in 1717 as (the equivalent of) £4.25, this price remained fixed for over 200 years with no inflation! Though the official price of Gold remained the same well into the 1940’s the market price fluctuated in the post war depressions and during the 1930’s Great depression.
The price of Gold doubled during the 1930’s depression, instigating the US government to ban private ownership. The new price of Gold was fixed in US Dollars in 1944 at $35. Once again fixing to a Gold standard maintained stability until 1967. During this time Gold backing of the currency was being steadily reduced. By 1971 Gold backing of the currency had become negligible and the Gold standard officially ended.
This had 2 major effects, it allowed the Gold price to fluctuate freely with the market determining the price. Secondly it allowed all fiat currencies (dollar and pound) to print as much as they needed with no backing restrictions.
This caused Gold to rise which it has continued to do. It also caused the pound and dollar to inflate time and time again, devaluing the currency continuously and inevitably leading from inflation to hyper inflation. To demonstrate that inflation is precisely the same as devaluation, look at the graph again this time upside down.
Gold has always been considered a hedge against inflation as it maintains its value throughout time, meaning that the same amount of Gold will buy you the same items even 100’s of years apart. So in the above graph Gold would be the X axis (the horizontal axis) and currency (pounds or dollars) would be the vertical axis. Clearly showing that currency has devalued continuously from the moment it left the Gold standard and lately this devaluation has increased.
Current Gold Price
Which brings us nicely up to the present day. Current Gold prices are entirely market driven on supply and demand as they have no current links with any currency. Current Gold supply is mainly for the jewellery sector though investment Gold has been steadily increasing in demand.
For 9 years (2002- 2011) Gold has been steadily increasing in value, time and time again reaching new price records. Each peak driven by the ever increasing demand. This demand has also had a knock on effect to the mining sector where previously unviable Gold veins have become viable through the increase in price.
New mines are now also opening to cope with the increase in demand. Mines can take 5-7 years to reach full productivity so demand in the short term will not be satisfied.
Gold price increase through investment is fuelled by the inflation of fiat currencies. As governments lose control of expenditure and compensate with borrowing, more and more money is pumped into the system, devaluing the existing currency. This causes investors to move their wealth elsewhere and smart investors know from history that during a recession commodities such as Gold not only retain their value but sharply increase in value.
Future Gold Price
As the recession deepens and currencies continue to inflate, Gold will steadily increase in value. If the currency collapses it will just revalue itself within the new currency unlike money which will become worthless.
Though there is talk of returning to a Gold standard I think this is highly unlikely. Due to the amount of money in the system it would make this almost impossible. For the amount of physical Gold currently held in Britain to equal all the fiat money in Britain, Gold would have to be revalued at around £65,000 per ounce! If you did the same mathematical equation for the worlds economy you would need to revalue Gold at over $37,000 per ounce. (prices correct as of Jan 2011).