“No one understands gold,” said N.M. Rothschild. But here you will learn more about the seven most important factors that investors should know …Ben Bernanke, the former president of the US Federal Reserve, did not think that anyone really understood gold prices, not even himself.
Here are three factors that are generally considered crucial for the price of gold.
Gold prices rose 18-fold in the 1970s as inflation peaked in peacetime. However, although inflation declined over the next 20 years, it continued to impact on the purchasing power of money, so that in 2000 the real value of the US dollar was only half.But at the same time, the gold price has also fallen by more than half, sometimes losing around 80% of its value in real terms. Since then, the US has officially recorded the slowest inflation rate of the past 50 years, but gold has risen by about 350%.For the past 45 years, gold prices and the US Consumer Price Index (CPI) have averaged a correlation value of 12, a statistical value divided by the consumer price index. A true correlation would produce the result 1. As a result, the CPI and the price of gold move independently.
Since gold does not pay interest, each buyer “loses” the money he would have received for his cash in the form of interest. These lost revenues are also referred to as “opportunity costs”. For gold, these losses are greater, the higher the interest rates are.However, although high interest rates make gold ownership less attractive, there is still no constant relationship between interest rates and gold prices. The fact is that since 1969 interest rates and gold prices have been moving in different directions for only half of the time. The rest of the time they went up or down.
As with interest rates, the direction of stock markets deviates from gold in less than 50% of the time. If you look at the 12-month periods since 1969, it’s exactly 48%. In fact, if you focus on the 12-month relationship between gold and the S & P 500 Index, you will not see any correlation over the past 45 years.In fact, gold does not correlate with the stock markets at all, so it offers equity investors the opportunity to best diversify their invested capital. As a result, the value of gold is part of a balanced portfolio that helps you avoid the combined increase or decrease in your total assets invested.