Gold is a bright yellow metal. People have been using it in various ways since long ago. Its price has always been several times higher than other metals since ancient times. Its price fluctuates at times but remains stable most of the time. However, the price of gold has been increasing in recent years. The question is, why is gold always so expensive? An attempt has been made to find the answer to that question in this article.
what is gold?
It is almost impossible to find a person in the world who does not know gold. No need to re-introduce it. But gold is a metal like silver or copper. Looking at the history of civilization, it can be seen that people have invented various metals for their own needs. According to the periodic table of science, the number of which is 118.
The chemical name of gold is ‘Aurum’, which is derived from the Latin word Aurora. Its symbol is ‘Au’ in the periodic table. Its atomic number is 79. It is a bright, slightly orange-yellow, soft, and malleable metal. It is usually underground. It is naturally available in powder and flakes.
Why is gold always valuable?
First, everything we see around us is a symbol. Gold is also a symbol. This symbol has no intrinsic value. They only become valuable when we consider them valuable or important. That is, the value of gold or any other commodity is ultimately socially created. Gold is expensive or precious; Because we socially think that its value will be the same as it was in the past.
If you understand how the value of something is determined, it will be easier to understand the issue of gold. For something to have value, it must have utility in some way. For example, even a small piece of paper becomes valuable to us when we can buy anything we want with it. Similarly, gold is valuable. Because it has some unique properties, which are not found in any other metal. Besides, gold has long been used as an ideal medium of exchange for goods and services.
Second, gold is one of the oldest metals or elements discovered by man. No one can say exactly when it was first discovered. But archaeologists have found many artifacts made of gold in ancient caves inhabited by Stone Age people. Those signs were made at least 40 thousand years ago.
Gold has been widely used in ancient civilizations starting from the Egyptian civilization to the Incas. In a word, since the beginning of the history of human civilization, this gold has always received a special place and symbolic value.
As time passed, the more qualities of gold were revealed, the more its reach spread. Along with the development of civilization and culture, its application area has also increased a lot. And so the appeal of gold, a reservoir of multifaceted qualities, beauty, and mystery, has not diminished even from the time of its discovery until today; Rather increased.
Thirdly, gold is a metal that can be easily melted and shaped as desired. It was very important for ancient people. Because they didn’t have such advanced technology to make complex artworks. At that time, gold was used to make ornaments and various works of art.
And they were used by the rich and influential like kings. At one time it was used as a medium of exchange and currency. Thus gold has been used from civilization to civilization around the world for thousands of years. As a result of which acceptance has been created in society. At the same time, it is considered valuable.
Fourth, today gold is a symbol of wealth. Now it is not only used in luxury jewelry, it is used in everything from smartphones to expensive cars. Gold is even used to make various instruments for space research.
Fifth, gold is an unreactive substance. It does not oxidize or tarnish like silver or iron. So it remains the same even if left in one place for hundreds of years. Gold coins do not lose or gain weight. Although metals such as aluminum, silver, or platinum look almost the same, gold is yellow in color. So it is instantly recognizable on sight.
Gold is a financial asset
There are four reasons why people are so interested in gold. 1) Scarcity: While all other metals are abundant in nature, gold is very rare. Because its supply is limited and it cannot be produced artificially. 2) Its utility is more than other metals. 3) has beauty and 4) the metal does not tarnish in any way. Instead, gold can be melted and shaped as desired; Can be brought back to its previous position.
Gold is also inextricably linked with the economy, banking system, and exchange rate. Gold’s role in today’s financial system is no longer as direct as it once was. 1880 to 1914 is the golden age of the gold standard. In this system, economically powerful countries expressed the value of their currency in terms of a certain amount of gold.
In this system, the central bank could not print notes at will. In the gold standard system, countries legislated the amount of gold their domestic currency would be worth. The next step in the monetary system is the gold bullion standard. It originated in Britain in 1925. In this system, the provision of gold reserve against current notes is removed. This system lasted till 1931.
After World War I, the demand for currency increased, but gold reserves did not. In this situation, most of the European countries changed the law and allowed the currency of other countries convertible into gold to be kept as reserves. However, to increase economic growth and employment, many countries started printing notes without having enough gold reserves. And therein lies the problem. After 1929, when the world depression occurred, this system was abandoned. Much later, after the Second World War, the importance of gold in the financial system was greatly reduced when the IMF introduced the par value system in the Bretton Wood system.
Although the importance of gold in the financial system has declined, the golden age of gold remains. The International Monetary Fund (IMF) still takes into account gold reserves when calculating the reserves of various countries. Again, this yellow precious metal comes up again and again in discussions because the importance of gold increases a lot during times of uncertainty.
It is said that Christopher Columbus set out to sea knowing that India was rich in gold. But he did not find a way to come to India. Instead, he came to North America. It is said that when he landed in America, he said, “Where is the gold?” Just like Columbus
Whenever there is danger in the economy, everyone should start looking for gold like him. Because no more reliable and expensive product has been discovered than gold.
The price of gold is increasing
New records are constantly being created at the price of gold. Its price has increased worldwide. Everyone now has the same question – why the price of gold is increasing like this, where will the price stop? Gold prices have a deep relationship with the global economy. There is only one answer to how the world economy is now – ‘uncertainty’. Experts say that this uncertainty and risk will remain in the coming days.
The Corona Pandemic or Covid-19 and recently the Russia-Ukraine War have created this situation. Uncertainty is the most harmful to the economy. But the time of uncertainty is the golden age of gold. The more uncertainty, the more gold sells. The higher the inflation, the higher the price of gold rises. Historically, gold prices rise the most during periods of high inflation.
It’s not that the price of gold is just going up by leaps and bounds. Sometimes decreasing. This is also a result of uncertainty. Indecision on raising interest rates or uncertainty about whether the economy will hit a recession also depends on the fluctuation of gold prices.
No one is predicting that this price will decrease for now. Whenever it seems that the economic crisis may be over, the price of gold falls a bit. And when it seems that increasing the interest rate is not working, then the price of gold increases.
Why does the price of gold rise and fall?
And like all commodities, the price of gold is determined by supply and demand. Supply comes in two ways. New extraction and sale of old gold. The extraction of gold in gold mining is an ongoing process. Usually, an estimate of how much gold will be mined each year is available.
As such, it does not rise much. For example, gold was mined in 2020, the same as in previous years, 3 thousand 476 tons. But usually, the supply of gold increases only when the price rises. When the price increases, many people sell their gold in the hope of more profit, and many people also sell gold to meet the increased cost of living.
The demand for gold is also created in two ways. Such as increased demand for jewelry and investment in gold. Gold as jewelry is more popular in China and India. Jewelry is also in good demand in western countries. According to the International Gold Council, 47 percent of the total gold supplied is used in jewelry, amounting to 2,230 tons.
Analysts say that the gold-selling season has not yet started in India. There are usually no major festivals in the middle of the year. It’s not wedding season either. This season will start in November. At that time the demand for gold will increase a lot.
Besides, there are various types of financial assets including bonds to invest in gold in different countries. Investment in this sector increases during times of uncertainty. Central banks also increase gold reserves for the future. According to estimates, the investment in gold bars and gold coins is 1 thousand tons. 21 percent of the total supply is used as an investment medium.
Also read: Next trade war will revolve around metals, not fuel oil
According to the Gold Council, the central banks of the world bought 37 tons of gold last July. Of this, Qatar alone bought 15 tons. Through this, they built up 72 tons of gold reserves. Qatar’s initiative to escape the economic blockade and uncertainty. Apart from this, the Central Bank of India bought 13 tons, Turkey 12 tons, and Uzbekistan 9 tons. Apart from this, Kazakhstan sold 11 tons of gold.
Gold is also directly related to the purchase and sale of fuel oil. It is generally observed that when the price of fuel increases, so does the price of gold. Because at that time, many countries sold fuel oil in exchange for gold. And since there is instability in the world currency market due to the dollar, the demand for gold as a medium of exchange is also increasing.
Now the global dollar is in a good mood. Most of the world’s major currencies lost value against the dollar. As a result, a strong dollar has become a threat to many countries. Low-income countries are particularly at risk. Their imports are high, exports are low.
And since most of the international trade has to be done in dollars, these countries have to devalue the currency to survive. Many countries, including Russia and China, have been vocal for a long time to avoid overdependence on the dollar. There may be many initiatives in the future. If confidence in the dollar declines, many will turn to gold.
Gold is also directly related to the purchase and sale of fuel oil. It is generally observed that when the price of fuel increases, so does the price of gold. Because at that time, many countries sold fuel oil in exchange for gold. And since there is instability in the world currency market due to the dollar, the demand for gold as a medium of exchange is also increasing.
Why so much reliance on gold?
Gold is considered the most stable and reliable commodity in the world. That said, gold prices alone don’t typically see major volatility. It can be said that there is no fear of loss if you buy gold. That is why everyone is so attracted to gold. Even if someone bought gold 50 years ago, it was considered a good investment. The stock market, the dollar, or anything else—doesn’t guarantee this.
When Bangladesh became independent, the price of gold was 154 taka. At that time the per capita income was 70 dollars. At that time, the per capita income was 509.6 taka if the dollar exchange rate was 7 taka 28 paise. This money could have bought 3.31 bars of gold. Now the per capita income of the people of Bangladesh is 2 thousand 824 dollars.
If you take 95 takas per dollar, the income is 2 lacks 68 thousand 280 takas. And now you have to pay 84 thousand 564 takes to buy gold. So now per capita income can buy 3.17 bars of gold. So