Will gold gain more value in a possible economic crisis?
Throughout the centuries, gold has captivated mankind. At the end of the gold standard, there was an increase in financial instability and inflation. During multiple stock market crashes in the first decade of the 21st century, the price of gold began to rise again. The idea of going back to the gold standard became more popular at that time. It is true that there were inherent problems with the gold standards implemented in the 19th and 20th centuries.
Many people do not realize that gold is a currency in the current system. Gold has often been thought of in relation to the US dollar, primarily because it is generally priced in US dollars. There is a long-term negative correlation between the price of the dollar and gold. These factors must be taken into account when we see that the price of gold is simply an exchange rate. Just as US dollars can be exchanged for Japanese yen, a paper money can be exchanged for gold. Gold also played an essential role in the origin of money.
- Throughout human history, gold has been used as a form of money in one form or another.
- From gold coins to paper notes backed by the gold standard, only recently has money been moved into a fiat system that is not backed by a physical product.
- Since then, inflation and the fall of the dollar have meant an increase in gold prices.
- By buying gold, people can also protect themselves from times of global economic uncertainty.
Gold is a currency
In a free market system, gold is a currency. Gold has a cost, and that cost will fluctuate in relation to other forms of exchange, such as the United States dollar, the euro, and the Japanese yen. Gold can be traded and stored, however, it is mainly not used directly as a payment method. However, it is quite liquid and can be converted into cash in almost any currency with relative ease.
It follows from this that gold acts like other currencies in many ways. There are times when gold is likely to move higher and times when other currencies or asset classes tend to outperform. We have the possibility of waiting for the gold to have an optimal management once the confidence in the paper money is waning, to the extent of the wars and once the activities suffer significant losses.
Investors have the ability to trade gold in a number of ways, including buying physical gold, futures contracts, and gold ETFs. Investors also have the ability to participate in cost movements without owning the underlying asset by buying a contract for difference (CFD).
Gold and the United States dollar
Gold and the US dollar constantly had an interesting interaction. In the long run, a falling dollar represented an increase in gold costs. In the short term, the interaction can break down.
The interaction of the United States dollar with the costs of gold is the result of the Bretton Woods system. The agreements around the world have been made in dollars and the US regime promised to exchange them for a fixed portion of gold. Although the Bretton Woods system ended in 1971, the USA remained a world power.
Once the population talks about gold, they mainly talk about the United States dollar.
In addition, it is essential to remember that gold and coins are dynamic and have much more than one income. The cost of gold is hurt by far more than inflation, the US dollar, and wars. Gold is a vital global commodity and therefore reflects international components, not just emotion in an economy. For example, the cost of gold dropped in 2000 once the Unified Kingdom regime sold a significant portion of its gold reserves.
Problems with gold standards
When considering gold as a currency, quite a few people endorse going back to some form of the gold standard. There were several drawbacks with the previous gold standards.
One of the biggest drawbacks has been that the systems ultimately depended on central banks to comply with the rules. The rules required central banks to adjust the discount rate to keep exchange rates static. Fixed exchange rates sometimes resulted in high interest rates, which were politically unpopular.3 Many nations chose to devalue their currency against gold or the US dollar.
A second problem with the gold standard has been that there were still short-term cost shocks, despite long-term cost equality. The California gold find of 1848 is a striking example of a cost collision. This gold discovery increased the money supply, which raised costs and cost levels, building short-term economic instability. It should be noted that such economic upheavals occurred under gold standards. Furthermore, any attempt to preserve a gold standard ultimately failed.
Using gold as currency
Without the gold standard, the cost of gold fluctuates freely in the market. Gold is deemed a safe haven, and the rising cost of gold is often an indicator of underlying economic downsides. Gold enables traders and individuals to invest in a commodity that can commonly partially protect them from financial turmoil. As discussed earlier, outages will occur under any system, including a gold standard.
There are moments in which it is convenient to have gold and other moments in which the general trend of gold will be unclear or negative. Although there are no official gold standards at the moment, gold continues to be adversely affected by other currencies. Consequently, gold should trade like other currencies.
Modifying to a deeper currency could be the key to maintaining wealth. For example, Germans who had gold-backed US dollars throughout the Weimar Republic's hyperinflation in Germany in the 1920s became rich rather than poor. Even once no territory has a gold standard, investors still have the ability to trade for gold. Once they buy gold, investors exchange their local currency for the currency of many of the most famous countries in history. Marcus Aurelius's Roman Empire, Victorian England, and George Washington's America were all on the gold standard.
Modifying to a deeper currency could be the key to maintaining wealth.
By trading for gold, individuals have the ability to protect themselves from times of global economic uncertainty. Trends and reversals occur in any currency, and this is also true for gold. Gold is a proactive investment to protect against the potential dangers of paper money. When the threat materializes, it is feasible that the virtue of gold has already disappeared. Consequently, gold has a forward-looking perspective and those who trade it also have to have a forward-looking perspective.
In a free market system, gold should be viewed as a currency like the euro, the Japanese yen, and the US dollar. Gold has an enduring relationship to the US dollar and generally moves in the opposite direction in the long run. When there is instability in the stock market, it is common to hear of creating another gold standard. Unfortunately, a gold standard is not a flawless system. Viewing gold as a currency and trading it as such can mitigate risks to paper money and the economy. However, investors should be aware that gold is forward looking. If you wait until disaster strikes, the price of gold may already have risen too high to offer protection.
What is the Gold Standard?
The gold standard is a fixed monetary regime under which the government's currency is fixed and can be freely converted into gold. It can also refer to a free competition monetary system in which gold or bank receipts for gold act as the main medium of exchange; or an international trade standard, in which some or all countries set their exchange rate based on relative gold parity values between individual currencies.
- Gold is a monetary system backed by the value of physical gold.
- Gold coins, as well as paper notes backed by or that can be exchanged for gold, are used as currency in this system.
- Gold was popular throughout human civilization, often part of a bimetallic system that also used silver.
- Most of the world's economies have abandoned the gold standard since the 1930s and now have free-floating fiat currency regimes.
How the Gold Standard works
The gold standard is a monetary system in which the currency or paper money of a territory has a cost directly linked to gold. With the gold standard, nations concluded to change paper money into a fixed portion of gold. A territory using the gold standard institutes a fixed cost for gold and buys and sells gold at that cost. That fixed cost is used to decide the cost of the coin. For example, if the US sets the cost of gold at $ 1000 an ounce, the cost of the dollar could be 1/1000 of an ounce of gold.
The gold standard developed a nebulous definition throughout the time, however it is primarily used to explain any commodity-based monetary system that is not based on unbacked fiat money, or money that is only important as the regime commands individuals to use it. Beyond that, however, there are monumental differences.
Certain gold standards are only based on the actual circulation of physical gold coins and bars, or bullion, however others allow other currencies or paper money. The current historical systems only granted the function of changing the national currency into gold, thus limiting the inflationary and deflationary capacity of banks or governments.
Why do I pray?
The largest part of the defenders of mercantile money choose gold as a means of barter thanks to its intrinsic characteristics. Gold has non-monetary uses, especially in jewelry, electronics, and dentistry, so it should continually retain a minimal degree of real demand. It is perfectly and evenly divisible without losing cost, unlike diamonds, and it does not spoil with age. It is impossible to counterfeit perfectly and it has a fixed stock: there is a small portion of gold on Earth and inflation is limited to the speed of mining.
Advantages and disadvantages of the Gold Standard
Using the gold standard has many advantages, including cost equality. This is a long-term virtue that makes it difficult for governments to inflate costs by enlarging the money supply. Inflation is rare and hyperinflation does not happen since the money supply can only grow if the supply of gold reserves increases. Similarly, the gold standard can grant static worldwide rates between participating nations and can further minimize uncertainty in universal business.
However, it can cause an imbalance between the nations that participate in the gold standard. Gold-producing countries have the possibility of having a virtue over those that do not generate the beautiful metal, thus increasing their own reserves. The gold standard can also, according to certain economists, prevent the mitigation of economic recessions since it hinders the function of a regime to increase its money supply, an instrument that several central banks have to help promote economic growth.
History of the Gold Standard
Around 650 a. C., gold has been converted into coins for the first time, which improved its usability as a monetary unit. Prior to this, gold had to be weighed and its purity checked when settling operations.
Gold coins were not a perfect solution, as a common practice throughout the centuries to come was to cut these subtly irregular coins to collect enough gold that could be melted into bullion. In 1696, the Great Reclamation in England introduced technology that automated the production of coins and put an end to clipping.
The US Constitution in 1789 gave Congress the sole right to mint money and the power to regulate its cost. The construction of a united national currency allowed the standardization of a monetary system that until now had consisted of the circulation of foreign currencies, primarily silver. With silver in greater abundance related to gold, a bimetallic standard was adopted in 1792. Although the officially adopted silver / gold parity interaction of 15: 1 accurately reflected the market interaction at that time, after 1793 the Cost of silver dropped again and again, taking the gold out of circulation, according to Gresham's law.
The so-called "era of the traditional gold standard" began in England in 1819 and spread to France, Germany, Switzerland, Belgium and the USA. Each regime fixed its national currency at a fixed weight in gold. Exemplifying, in 1834, US dollars were convertible into gold at a rate of $ 20.67 per ounce. These parity rates were used to set the cost of transactions around the world. Later, other territories joined to gain entry to western commercial markets.
There were many breaks in the gold standard, especially throughout wartime, and many nations experimented with bimetallic (gold and silver) standards. Governments often spent far more than their gold reserves could return, and suspensions from national gold standards were radically common. In addition, governments struggled to correctly link the interaction between their national currencies and gold without producing distortions.
As governments or central banks maintained monopoly privileges over the supply of national currencies, the gold standard proved to be an ineffective or inconsistent restriction of fiscal policy. The gold standard eroded very slowly in the 20th century. This started in the USA in 1933, once Franklin Delano Roosevelt signed an executive order criminalizing the private possession of monetary gold.
After World War II, the Bretton Woods consensus forced partner nations to admit the United States dollar as a reserve instead of gold, and the United States regime pledged to retain enough gold to back their dollars.8 In 1971, the Nixon administration ended the convertibility of US dollars to gold, building a fiat currency system.
The gold standard versus fiat money
As its name indicates, the gold standard concept is related to a monetary system in which the cost of the currency is based on gold. A fiduciary system, on the other hand, is a monetary system in which the cost of the currency is not based on any physical product, but is allowed to fluctuate dynamically against other currencies in the foreign exchange markets. The concept "fiat" is derived from the Latin fieri, which means an arbitrary act or decree. According to this etymology, the cost of fiat currencies is ultimately based on the proceeds of which are defined as legal tender by means of a government decree.
In the decades leading up to World War I, world business was conducted on the basis of which is known how the traditional gold standard. In this system, the business between nations has been solved using physical gold. Countries with trade surpluses accumulated gold as payment for their exports. On the other hand, countries with trade deficits saw their gold reserves reduce, as gold flowed out of those nations as payment for their imports.
Reasons to own Gold:
A history of conserving your cost
Unlike paper money, coins or other assets, gold has maintained its cost over the centuries. The population sees gold as a way of transmitting and maintaining their wealth from one generation to the next. Since ancient times, the population has valued the unique characteristics of the beautiful metal. Gold does not corrode and can be melted over a common flame, allowing it to be worked with and sealed like a coin. In addition, gold has a unique and beautiful color, unlike other resources. Gold atoms are heavier and electrons move faster, building up absorption of some light; a process that it took Einstein's theory of relativity to decipher.
Weakness of the United States dollar
Even though the United States dollar is one of the most relevant reserve currencies in the world, once the cost of the dollar falls against other currencies as it did between 1998 and 2008, this commonly leads the population to seek stability. of gold, which raises the cost of gold. The cost of gold nearly tripled between 1998 and 2008, reaching the $ 1,000 an ounce milestone in early 2008 and nearly doubling between 2008 and 2012, surpassing the $ 2,000 mark. The fall of the United States dollar occurred for many reasons, including the territory's huge budget and trade deficits and a large increase in the money supply.
Inflation coverage
Historically, gold was an admirable defense against inflation, as its cost tends to rise once the price of life increases. Over the past 50 years, investors have watched gold costs skyrocket and the stock market plummet through years of high inflation. This is because once fiat currency loses its purchasing power due to inflation, gold tends to be priced in those currency units and therefore tends to emerge along with everything else. In addition, gold is estimated to be a good reserve of cost, so individuals can be encouraged to trade for gold once they invent that their local currency is losing cost.
Deflation protection
Deflation is defined as a period in which costs decrease, once business activity slows down and the economy is overwhelmed by excessive debt, which was not seen around the world since the Great Depression of the years 30 (although there was a tiny level of deflation after the 2008 financial crisis). in certain parts of the world). Throughout the Depression, the relative purchasing power of gold soared, while other costs fell sharply. This is because individuals chose to pool cash, and the safest place to store cash was in gold and gold coins at the time.
Geopolitical uncertainty
Gold preserves its cost not only in times of financial uncertainty, but also in times of geopolitical uncertainty. It is commonly called the "product of the crisis", as the population escapes towards its relative stability once the tensions of the whole world increase; Throughout those moments, it constantly outperforms other investments. For example, gold costs experienced certain relevant cost movements this year in response to the crisis that is occurring in the European Alliance. Its cost often rises higher once trust in governments is low.
Supply restrictions
An important part of the gold supply in the market from the 1990s arises from the sales of gold bars from the vaults of central banks around the world. This commercialization by international central banks slowed enormously in 2008. Simultaneously, new gold production from mines had been declining since 2000. According to BullionVault.com, annual gold subtraction production fell from 2,573 metric tons. in 2000 to 2,444 metric tons. in 2007 (however, according to the US Geological Survey, gold saw a rebound in production with production of nearly 2,700 metric tons in 2011). It may take 5 to 10 years to bring an entirely new mine into production. As a general rule, reducing the supply of gold increases the costs of gold.
Increased demand
In recent years, the growth of wealth in emerging market economies has boosted demand for gold. In several of these territories, gold is intertwined with culture. In China, where gold bars are a classic form of savings, the demand for gold was constant. India is the second largest gold consuming territory in the world; it has a number of uses there, including jewelry. As such, the Indian wedding season in October is commonly the era of the year when the world's largest demand for gold is recorded.
The demand for gold has also grown among investors. Several remain beginning to see commodities, especially gold, as an investment class to which funds should be allocated. By the way, SPDR Gold Trust has become one of the largest ETFs in the US, as well as the largest gold bullion holder in the world since 2019.
Gold should be a large part of a diversified investment portfolio as its cost increases in response to events that cause the cost of paper investments, such as occupations and bonds, to decrease. Even though the cost of gold could be volatile in the short term, a long term is often quite profitable.
Technical analysis.
Historically, Gold has never suffered a retracement greater than 0.786 Fibonacci. Over time. It is extremely strange.
It should be added that, knowing the fundamentals, the current economic crisis meets all the characteristics to invest in gold in the long term, as a way to ensure value.
Fibonacci Channel
Gold on a Fibonacci channel is generally a good way to gauge a possible pullback to start a strong long-term projection. An example is 2008. To be able to do this. As we know, gold usually obtains value, behind a financial crisis, a crisis that currently happened, to see this, you can review our financial crisis post. Historically, 0.23 Fibonacci has been a strong support in the value of Gold.
If we take as a basis, the high purchase areas, historically, based on POC results from Volume Profile.
I will discard the last one, result. Because it breaks the Fibonacci channel and the base we never go back past the 0.786 Fibonacci.
And if we base ourselves on the same Fibonacci channel, we could take gold as a projection towards $ 3,000-4,000.
If we are based on Fibonacci retracement, I would prioritize a buy zone in the 200-period moving average zone and 0.382 Fibonacci, from then on, I would only look to make scalar purchases by betting long-term. It should be added that gold is a reserve against inflation, so many investors with strong capital will enter this asset.
Personally, I am waiting for a 200-period moving average test to put in a strong long-term capital. Perhaps there is a break from this. For this reason, I have another capital prepared to buy in scale in the green rectangle, placed in the zone.
Conservative Goals.
Being pessimistic, I would expect a bullish by testing or breaking the 200-period moving average towards testing the Fib Gold of 4,236 ($ 1301). To head towards $ 2,500.
And being optimistic, we could expect to obtain values greater than 3000 usd. Exactly at the Genesis level of Gold ratio of 3700 usd.
In terms of indicators. The RSI has space, to be able to initiate the fall towards the purchase levels mentioned in the 3d or 1 week chart.
Well, knowing all this, what do you think gold will do? Do you think investors will give it priority due to the fact of a supposed crisis similar to 2008? , Leave me your opinion in the comments.
Many people do not realize that gold is a currency in the current system. Gold has often been thought of in relation to the US dollar, primarily because it is generally priced in US dollars. There is a long-term negative correlation between the price of the dollar and gold. These factors must be taken into account when we see that the price of gold is simply an exchange rate. Just as US dollars can be exchanged for Japanese yen, a paper money can be exchanged for gold. Gold also played an essential role in the origin of money.
- Throughout human history, gold has been used as a form of money in one form or another.
- From gold coins to paper notes backed by the gold standard, only recently has money been moved into a fiat system that is not backed by a physical product.
- Since then, inflation and the fall of the dollar have meant an increase in gold prices.
- By buying gold, people can also protect themselves from times of global economic uncertainty.
Gold is a currency
In a free market system, gold is a currency. Gold has a cost, and that cost will fluctuate in relation to other forms of exchange, such as the United States dollar, the euro, and the Japanese yen. Gold can be traded and stored, however, it is mainly not used directly as a payment method. However, it is quite liquid and can be converted into cash in almost any currency with relative ease.
It follows from this that gold acts like other currencies in many ways. There are times when gold is likely to move higher and times when other currencies or asset classes tend to outperform. We have the possibility of waiting for the gold to have an optimal management once the confidence in the paper money is waning, to the extent of the wars and once the activities suffer significant losses.
Investors have the ability to trade gold in a number of ways, including buying physical gold, futures contracts, and gold ETFs. Investors also have the ability to participate in cost movements without owning the underlying asset by buying a contract for difference (CFD).
Gold and the United States dollar
Gold and the US dollar constantly had an interesting interaction. In the long run, a falling dollar represented an increase in gold costs. In the short term, the interaction can break down.
The interaction of the United States dollar with the costs of gold is the result of the Bretton Woods system. The agreements around the world have been made in dollars and the US regime promised to exchange them for a fixed portion of gold. Although the Bretton Woods system ended in 1971, the USA remained a world power.
Once the population talks about gold, they mainly talk about the United States dollar.
In addition, it is essential to remember that gold and coins are dynamic and have much more than one income. The cost of gold is hurt by far more than inflation, the US dollar, and wars. Gold is a vital global commodity and therefore reflects international components, not just emotion in an economy. For example, the cost of gold dropped in 2000 once the Unified Kingdom regime sold a significant portion of its gold reserves.
Problems with gold standards
When considering gold as a currency, quite a few people endorse going back to some form of the gold standard. There were several drawbacks with the previous gold standards.
One of the biggest drawbacks has been that the systems ultimately depended on central banks to comply with the rules. The rules required central banks to adjust the discount rate to keep exchange rates static. Fixed exchange rates sometimes resulted in high interest rates, which were politically unpopular.3 Many nations chose to devalue their currency against gold or the US dollar.
A second problem with the gold standard has been that there were still short-term cost shocks, despite long-term cost equality. The California gold find of 1848 is a striking example of a cost collision. This gold discovery increased the money supply, which raised costs and cost levels, building short-term economic instability. It should be noted that such economic upheavals occurred under gold standards. Furthermore, any attempt to preserve a gold standard ultimately failed.
Using gold as currency
Without the gold standard, the cost of gold fluctuates freely in the market. Gold is deemed a safe haven, and the rising cost of gold is often an indicator of underlying economic downsides. Gold enables traders and individuals to invest in a commodity that can commonly partially protect them from financial turmoil. As discussed earlier, outages will occur under any system, including a gold standard.
There are moments in which it is convenient to have gold and other moments in which the general trend of gold will be unclear or negative. Although there are no official gold standards at the moment, gold continues to be adversely affected by other currencies. Consequently, gold should trade like other currencies.
Modifying to a deeper currency could be the key to maintaining wealth. For example, Germans who had gold-backed US dollars throughout the Weimar Republic's hyperinflation in Germany in the 1920s became rich rather than poor. Even once no territory has a gold standard, investors still have the ability to trade for gold. Once they buy gold, investors exchange their local currency for the currency of many of the most famous countries in history. Marcus Aurelius's Roman Empire, Victorian England, and George Washington's America were all on the gold standard.
Modifying to a deeper currency could be the key to maintaining wealth.
By trading for gold, individuals have the ability to protect themselves from times of global economic uncertainty. Trends and reversals occur in any currency, and this is also true for gold. Gold is a proactive investment to protect against the potential dangers of paper money. When the threat materializes, it is feasible that the virtue of gold has already disappeared. Consequently, gold has a forward-looking perspective and those who trade it also have to have a forward-looking perspective.
In a free market system, gold should be viewed as a currency like the euro, the Japanese yen, and the US dollar. Gold has an enduring relationship to the US dollar and generally moves in the opposite direction in the long run. When there is instability in the stock market, it is common to hear of creating another gold standard. Unfortunately, a gold standard is not a flawless system. Viewing gold as a currency and trading it as such can mitigate risks to paper money and the economy. However, investors should be aware that gold is forward looking. If you wait until disaster strikes, the price of gold may already have risen too high to offer protection.
What is the Gold Standard?
The gold standard is a fixed monetary regime under which the government's currency is fixed and can be freely converted into gold. It can also refer to a free competition monetary system in which gold or bank receipts for gold act as the main medium of exchange; or an international trade standard, in which some or all countries set their exchange rate based on relative gold parity values between individual currencies.
- Gold is a monetary system backed by the value of physical gold.
- Gold coins, as well as paper notes backed by or that can be exchanged for gold, are used as currency in this system.
- Gold was popular throughout human civilization, often part of a bimetallic system that also used silver.
- Most of the world's economies have abandoned the gold standard since the 1930s and now have free-floating fiat currency regimes.
How the Gold Standard works
The gold standard is a monetary system in which the currency or paper money of a territory has a cost directly linked to gold. With the gold standard, nations concluded to change paper money into a fixed portion of gold. A territory using the gold standard institutes a fixed cost for gold and buys and sells gold at that cost. That fixed cost is used to decide the cost of the coin. For example, if the US sets the cost of gold at $ 1000 an ounce, the cost of the dollar could be 1/1000 of an ounce of gold.
The gold standard developed a nebulous definition throughout the time, however it is primarily used to explain any commodity-based monetary system that is not based on unbacked fiat money, or money that is only important as the regime commands individuals to use it. Beyond that, however, there are monumental differences.
Certain gold standards are only based on the actual circulation of physical gold coins and bars, or bullion, however others allow other currencies or paper money. The current historical systems only granted the function of changing the national currency into gold, thus limiting the inflationary and deflationary capacity of banks or governments.
Why do I pray?
The largest part of the defenders of mercantile money choose gold as a means of barter thanks to its intrinsic characteristics. Gold has non-monetary uses, especially in jewelry, electronics, and dentistry, so it should continually retain a minimal degree of real demand. It is perfectly and evenly divisible without losing cost, unlike diamonds, and it does not spoil with age. It is impossible to counterfeit perfectly and it has a fixed stock: there is a small portion of gold on Earth and inflation is limited to the speed of mining.
Advantages and disadvantages of the Gold Standard
Using the gold standard has many advantages, including cost equality. This is a long-term virtue that makes it difficult for governments to inflate costs by enlarging the money supply. Inflation is rare and hyperinflation does not happen since the money supply can only grow if the supply of gold reserves increases. Similarly, the gold standard can grant static worldwide rates between participating nations and can further minimize uncertainty in universal business.
However, it can cause an imbalance between the nations that participate in the gold standard. Gold-producing countries have the possibility of having a virtue over those that do not generate the beautiful metal, thus increasing their own reserves. The gold standard can also, according to certain economists, prevent the mitigation of economic recessions since it hinders the function of a regime to increase its money supply, an instrument that several central banks have to help promote economic growth.
History of the Gold Standard
Around 650 a. C., gold has been converted into coins for the first time, which improved its usability as a monetary unit. Prior to this, gold had to be weighed and its purity checked when settling operations.
Gold coins were not a perfect solution, as a common practice throughout the centuries to come was to cut these subtly irregular coins to collect enough gold that could be melted into bullion. In 1696, the Great Reclamation in England introduced technology that automated the production of coins and put an end to clipping.
The US Constitution in 1789 gave Congress the sole right to mint money and the power to regulate its cost. The construction of a united national currency allowed the standardization of a monetary system that until now had consisted of the circulation of foreign currencies, primarily silver. With silver in greater abundance related to gold, a bimetallic standard was adopted in 1792. Although the officially adopted silver / gold parity interaction of 15: 1 accurately reflected the market interaction at that time, after 1793 the Cost of silver dropped again and again, taking the gold out of circulation, according to Gresham's law.
The so-called "era of the traditional gold standard" began in England in 1819 and spread to France, Germany, Switzerland, Belgium and the USA. Each regime fixed its national currency at a fixed weight in gold. Exemplifying, in 1834, US dollars were convertible into gold at a rate of $ 20.67 per ounce. These parity rates were used to set the cost of transactions around the world. Later, other territories joined to gain entry to western commercial markets.
There were many breaks in the gold standard, especially throughout wartime, and many nations experimented with bimetallic (gold and silver) standards. Governments often spent far more than their gold reserves could return, and suspensions from national gold standards were radically common. In addition, governments struggled to correctly link the interaction between their national currencies and gold without producing distortions.
As governments or central banks maintained monopoly privileges over the supply of national currencies, the gold standard proved to be an ineffective or inconsistent restriction of fiscal policy. The gold standard eroded very slowly in the 20th century. This started in the USA in 1933, once Franklin Delano Roosevelt signed an executive order criminalizing the private possession of monetary gold.
After World War II, the Bretton Woods consensus forced partner nations to admit the United States dollar as a reserve instead of gold, and the United States regime pledged to retain enough gold to back their dollars.8 In 1971, the Nixon administration ended the convertibility of US dollars to gold, building a fiat currency system.
The gold standard versus fiat money
As its name indicates, the gold standard concept is related to a monetary system in which the cost of the currency is based on gold. A fiduciary system, on the other hand, is a monetary system in which the cost of the currency is not based on any physical product, but is allowed to fluctuate dynamically against other currencies in the foreign exchange markets. The concept "fiat" is derived from the Latin fieri, which means an arbitrary act or decree. According to this etymology, the cost of fiat currencies is ultimately based on the proceeds of which are defined as legal tender by means of a government decree.
In the decades leading up to World War I, world business was conducted on the basis of which is known how the traditional gold standard. In this system, the business between nations has been solved using physical gold. Countries with trade surpluses accumulated gold as payment for their exports. On the other hand, countries with trade deficits saw their gold reserves reduce, as gold flowed out of those nations as payment for their imports.
Reasons to own Gold:
A history of conserving your cost
Unlike paper money, coins or other assets, gold has maintained its cost over the centuries. The population sees gold as a way of transmitting and maintaining their wealth from one generation to the next. Since ancient times, the population has valued the unique characteristics of the beautiful metal. Gold does not corrode and can be melted over a common flame, allowing it to be worked with and sealed like a coin. In addition, gold has a unique and beautiful color, unlike other resources. Gold atoms are heavier and electrons move faster, building up absorption of some light; a process that it took Einstein's theory of relativity to decipher.
Weakness of the United States dollar
Even though the United States dollar is one of the most relevant reserve currencies in the world, once the cost of the dollar falls against other currencies as it did between 1998 and 2008, this commonly leads the population to seek stability. of gold, which raises the cost of gold. The cost of gold nearly tripled between 1998 and 2008, reaching the $ 1,000 an ounce milestone in early 2008 and nearly doubling between 2008 and 2012, surpassing the $ 2,000 mark. The fall of the United States dollar occurred for many reasons, including the territory's huge budget and trade deficits and a large increase in the money supply.
Inflation coverage
Historically, gold was an admirable defense against inflation, as its cost tends to rise once the price of life increases. Over the past 50 years, investors have watched gold costs skyrocket and the stock market plummet through years of high inflation. This is because once fiat currency loses its purchasing power due to inflation, gold tends to be priced in those currency units and therefore tends to emerge along with everything else. In addition, gold is estimated to be a good reserve of cost, so individuals can be encouraged to trade for gold once they invent that their local currency is losing cost.
Deflation protection
Deflation is defined as a period in which costs decrease, once business activity slows down and the economy is overwhelmed by excessive debt, which was not seen around the world since the Great Depression of the years 30 (although there was a tiny level of deflation after the 2008 financial crisis). in certain parts of the world). Throughout the Depression, the relative purchasing power of gold soared, while other costs fell sharply. This is because individuals chose to pool cash, and the safest place to store cash was in gold and gold coins at the time.
Geopolitical uncertainty
Gold preserves its cost not only in times of financial uncertainty, but also in times of geopolitical uncertainty. It is commonly called the "product of the crisis", as the population escapes towards its relative stability once the tensions of the whole world increase; Throughout those moments, it constantly outperforms other investments. For example, gold costs experienced certain relevant cost movements this year in response to the crisis that is occurring in the European Alliance. Its cost often rises higher once trust in governments is low.
Supply restrictions
An important part of the gold supply in the market from the 1990s arises from the sales of gold bars from the vaults of central banks around the world. This commercialization by international central banks slowed enormously in 2008. Simultaneously, new gold production from mines had been declining since 2000. According to BullionVault.com, annual gold subtraction production fell from 2,573 metric tons. in 2000 to 2,444 metric tons. in 2007 (however, according to the US Geological Survey, gold saw a rebound in production with production of nearly 2,700 metric tons in 2011). It may take 5 to 10 years to bring an entirely new mine into production. As a general rule, reducing the supply of gold increases the costs of gold.
Increased demand
In recent years, the growth of wealth in emerging market economies has boosted demand for gold. In several of these territories, gold is intertwined with culture. In China, where gold bars are a classic form of savings, the demand for gold was constant. India is the second largest gold consuming territory in the world; it has a number of uses there, including jewelry. As such, the Indian wedding season in October is commonly the era of the year when the world's largest demand for gold is recorded.
The demand for gold has also grown among investors. Several remain beginning to see commodities, especially gold, as an investment class to which funds should be allocated. By the way, SPDR Gold Trust has become one of the largest ETFs in the US, as well as the largest gold bullion holder in the world since 2019.
Gold should be a large part of a diversified investment portfolio as its cost increases in response to events that cause the cost of paper investments, such as occupations and bonds, to decrease. Even though the cost of gold could be volatile in the short term, a long term is often quite profitable.
Technical analysis.
Historically, Gold has never suffered a retracement greater than 0.786 Fibonacci. Over time. It is extremely strange.
It should be added that, knowing the fundamentals, the current economic crisis meets all the characteristics to invest in gold in the long term, as a way to ensure value.
Fibonacci Channel
Gold on a Fibonacci channel is generally a good way to gauge a possible pullback to start a strong long-term projection. An example is 2008. To be able to do this. As we know, gold usually obtains value, behind a financial crisis, a crisis that currently happened, to see this, you can review our financial crisis post. Historically, 0.23 Fibonacci has been a strong support in the value of Gold.
If we take as a basis, the high purchase areas, historically, based on POC results from Volume Profile.
I will discard the last one, result. Because it breaks the Fibonacci channel and the base we never go back past the 0.786 Fibonacci.
And if we base ourselves on the same Fibonacci channel, we could take gold as a projection towards $ 3,000-4,000.
If we are based on Fibonacci retracement, I would prioritize a buy zone in the 200-period moving average zone and 0.382 Fibonacci, from then on, I would only look to make scalar purchases by betting long-term. It should be added that gold is a reserve against inflation, so many investors with strong capital will enter this asset.
Personally, I am waiting for a 200-period moving average test to put in a strong long-term capital. Perhaps there is a break from this. For this reason, I have another capital prepared to buy in scale in the green rectangle, placed in the zone.
Conservative Goals.
Being pessimistic, I would expect a bullish by testing or breaking the 200-period moving average towards testing the Fib Gold of 4,236 ($ 1301). To head towards $ 2,500.
And being optimistic, we could expect to obtain values greater than 3000 usd. Exactly at the Genesis level of Gold ratio of 3700 usd.
In terms of indicators. The RSI has space, to be able to initiate the fall towards the purchase levels mentioned in the 3d or 1 week chart.
Well, knowing all this, what do you think gold will do? Do you think investors will give it priority due to the fact of a supposed crisis similar to 2008? , Leave me your opinion in the comments.
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