Summary A look at what macro economic factors make Gold attractive to hold. We look at the relationship between real interest rates and Gold prices and point out how other currencies in the world looking unattractive makes Gold look attractive. Transcript In this video we take a look at how gold competes with other currencies and look at what factors make holding gold relatively more or less attractive compared to other currencies in the world. Setting up the example Similar to our previous video, we are going to assume that there are only three currencies in the world: the US dollar, gold and rest of the world (ROW) currencies. If you watched our previous videos you know that the reason
Summary An examination of how Gold prices and the US dollar are related. Gold prices are typically denominated in US dollars and this implies that the exposure gained from buying/selling gold is influenced by changes in the exchange rate for US dollars. Videos to watch before 1. Why is gold a currency? Transcript In this video we are going to try to answer the question: what is the relationship between the price of gold and the US dollar? The short answer to this question is that the price of gold is inversely related to the US dollar. The long answer involves the following example. Setting up an example Let’s assume that in the world there are only three currencies. We
We often hear the phrase that gold is an “inflation hedge”. If gold were the perfect inflation hedge, then the rate of inflation would be perfectly contemporaneously correlated with changes in gold prices. Is this actually true? Gold vs. realized inflation The chart below shows the inflation rate (CPI Yoy) vs. the one year change in the price of gold. Its clear that the lines seem correlated back in the 70’s and 80′s and somewhat correlated in the previous 4 years, but have a variant relationship in the middle. For example, in the early 90′s inflation was ~5%, but gold prices were basically flat and in the late 90′s inflation was at 3%, while gold prices were not increasing. This
When you buy/sell gold what exposure to macro economic forces do you get? We think there are primarily two factors that will influence the performance of gold in the long term: 1) What will happen to the attractiveness of keeping money in paper currencies in general For hundreds of years people have seen gold as a store of value. For a long time, it was used as a currency in itself and then when paper money was created it was what backed the paper money. All through out the period when the world was on the gold standard, the reason people thought paper currency had any value is because they believed that they could exchange that paper currency for gold.
Summary A look at who the major players are in the gold market. We also examine the behavior of central banks over the past 30 years with respect to holding/selling gold for their reserves. We explain why the constituents of gold demand makes it sensible to look at gold as a currency in today’s market. In this video we’re going to talk about the present-day gold market and who the participants in this market are. All the gold that’s never been mined still exists in the world in one form or another so the first thing we’re going to do is we’re going to look at where all the existing the gold in the world is. Transcript The World’s Gold
There is some disagreement over whether gold should be treated as a commodity or a currency. The reason this distinction matters is that if gold is a classic commodity (i.e something that is mostly consumed for the production of other goods/services) it would make sense to analyse the impact of yearly mining production and industrial demand shocks in order to understand the risk of buying/selling gold. On the other hand, if gold is primarily a currency, then it makes sense to analyze its comparative attractiveness as a alternative to paper currency. In this article, we’ll examine why it does not make much sense to look at gold as a commodity. Background By the end of 2010 there were an estimated