Gold Derivatives
Gold has been a very important element to mankind since before recorded history. It has many uses including currency, jewelry, and art. It is unique because it is very malleable, resists corrosion, and is an excellent conductor of electricity. For these reasons, gold demand has increased concurrently with population growth throughout history. Gold investments have their place in every portfolio, whether they are used to hedge against inflation, speculate, or just to diversify among different assets.
Many investors choose gold, because our dollar, as a fiat currency, is very unstable by nature. I think G. Edward Griffin put it best when he wrote, “Fiat Money is paper money without precious-metal backing and which people are required by law to accept. It allows politicians to increase spending without raising taxes. Fiat money is the cause of inflation, and the amount people lose in purchasing power is exactly the amount which was taken from them and transferred to their government by this process. Inflation, therefore, is a hidden tax. This tax is the most unfair of all because it falls most heavily on those who are least able to pay: the small wage earner and those on fixed incomes. It also punishes the thrifty by eroding the value of their savings. This creates resentment among the people, leading always to political unrest and national disunity.”
Most countries use fiat currencies today, and this troubles all proponents of sound money. A disruption in our government can dramatically affect the value of our dollar. The U.S. government has added a trillion dollars to the USD supply in the past year. This house of cards can only stand for so long, and once a large number of citizens simultaneously lose faith in...
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...sources of credit. Minders found that they could get involved with the central bank and their new offers for gold loans. These gold loans were prototype derivative products. Mining companies borrowed gold from the central bank and sold it to raise capital. They then paid it back with gold produced from their new projects. Since these projects were financed through metal borrowing, this new output was subject to price risk, which mining companies decided to manage through increasingly sophisticated gold-based derivatives. This created a very new market for a whole range of derivative products from basic forwards to vanilla and exotic options as well as any combination of these products that one could imagine.
Thus, the gold derivatives market was born, and it has only continued to evolve from there.
Works Cited
http://www.virtualmetals.co.uk/pdf/ABARESpeech.pdf
Shahriar Shafiee (2010) is concerned about global gold market and gold price forecasting. He stated that in practice, the price and production behavior of gold differs from most other mineral commodities. In the 2008 financial crisis, the gold price increased by 6% while many key mineral prices fell and other equities dropped by around 40%. The unique and diverse of gold demand and supply do not correlate highly with changes in other financial assets. He had concluded that the gold supply showed that around 160,000 tons of gold has been mined in history up to the end of 2008. Gold demand by jewelry, industrial and central bank reserves equate to approximately 100,000, 30,000 and 30,000 tons, respectively. A significant proportion of the demand side of gold is attributed to jewelry, which can in turn be injected into the supply side.
Gold is one of the most valuable materials all around the world. This jewel has its own glittering appearance and shiny color which induce people to desire to possess it. That’s probably why Europeans in the middle age have explored new continents and invaded other civilizations to find this glittering material. Americans also had given much endeavor to mine that valuable jewel in the time of gold rush. Investigating these events, gold has immensely affected the world history; the Age of Exploration, invasions of Spaniards, and the development of California.
Gold is recyclable material and it has a definite supply chain systems. In contrast, some sort of gold has particular features, including its natural value and handiness. And these have created it a possible source of investment for unlawful armed groups complex in civil wars and revolts. It is essential that the society take responsibility to reduce misapplication of gold. The uses of gold are enormous. Gold is not a decorative material anymore. Its usages are being more fundamental and essential to our contemporary generation. Consequently without using gold and culture of gold, people would be living in totally different way. Possibly, A lifetime is less technologically developed and unquestionably the world and cultures are less beautiful.
Money makes exchange much easier, because people can trade their goods for money and use the money to buy other things. In the Bible money was silver or gold, a precious metal, and America was on a gold standard throughout most of her history. In 1933 we shifted to a silver standard and in 1968 our silver certificates were replaced with Federal Reserve Notes (Remy, 2008). Today’s paper money is not backed by anything except the government’s promise that it is good. Money with no precious metal backing allows the central government to spend more than it collects in taxes, because the Federal Reserve Board can print new money, thus increasing the money supply, anytime there is a need. This is what causes inflation and is one way that the Federal Reserve Board has overstepped Biblical principles in economic policy. Greg Anthony writes that “one of the Biblical signs of a nation backsliding is the condition of its currency and the degree of honesty in its weights and measures” (Anthony, 1988, p. 28). When the money supply is increased, either through printing more money or credit-expansion, the purchasing power of the dollar falls, and businesses must increase the prices they charge to keep up with their own higher costs. Inflation encourages debt, deceives people about pay increases and future wealth accumulations, is a hidden theft tax, and decreases capital available for
Also, John McPhee stated, “We were well into the country rock of California gold- the rock that was there when, in various ways, the gold itself arrived.” This statement by John McPhee explains how gold impacted our world. Gold has an effect on capitalism. We as a society have a history of how we process gold into currency. In the past, Kings negotiate with gold and it was used as a currency. However, in today’s world, we don’t have many people buy with gold but with bills or coins. In the statement by John
Let’s start with what money is and what it does. Money is “anything that is generally accepted in payment for goods and services.” (Mishkin, 2010) Money needs to have value to the people within a society in order to fill this role. One of the primary roles of money is to be used as payment for goods or services; it also reflects value or price levels and retains value over time. Currency is the actual form of the “acceptable” money. Money that is made of a valuable commodity, such as silver or gold, is called commodity money. As is typical of economies as they mature, the United States has moved away from commodity money to paper money. The money is backed not by the value of the commodity, but by a promise for payment.
Hanes, C., & Rhode, P. W. (2013). Harvests and Financial Crises in Gold Standard America.
The gold standard was a commitment from participating countries to set their currencies in terms of specified amounts of gold. The country’s government allows its currency to be converted into a set amount of gold and vice verse. The main benefit of a gold standard is to help keep inflation low since it is caused by changes in the supply and demand of money and goods. The government cannot print too much money because the supply of money would increase, but the value of gold would remain the same and eventually would result in the treasury running out of gold. This is tricky because the government could not increase the amount of money in circulation without also increasing the country’s gold reserves. The extensive use of the gold standard implies a system of fixed exchange rates where gold is really the only
The gold standard is a monetary system in which the value of a nation’s currency is attached to the value of gold. In this system, gold can be exchanged for currency and currency can be exchanged for gold. During the nineteenth century, the major nations of the world switched to the gold standard, thereby replacing the previous system of bimetallism (a standard based on the values of both gold and silver). In 1821, Britain was the first nation to adopt the gold standard. At the time, Britain was the wealthiest and most powerful nation in the world. In order to facilitate international trade, other nations began following Britain’s example (Eichengreen 7). The change did not occur smoothly in every country. For example, after the United States adopted the gold standard in 1873, a politician named William Jennings Bryan led a movement to switch to a silver standard instead. At that time, silver was relatively cheap because an abundance of it had been discovered in the mines of the Western U.S. Bryan, an advocate for the rights of farmers and other laborers...
I am going to discuss about the element known as gold in my assignment. To describe the element gold in simple terms, I can only say that it is an element (chemical element). This element is denoted by the symbol Au. It has an atomic number of seventy nine (79). I will describe quite a number of things concerning gold as an element. To begin with is:
In 1972: International Monetary Market (IMM) for trading currency futures was created. In 1975: first interest rate futures contract create by CBOT. In 1975: Treasury bill futures contract (& options) by CBOT. In 1977: T-Bo...
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