Topic-Gold stocks and index performance comparison Research Paper

Topic-Gold stocks and index performance comparison - Research Paper mannikinWhen a countrys currency devalues signifi bungholetly, capital held by central banks and Federal Reserve can be used in trade as a reckons of give-and-take to facilitate trade. For governments to besiege against instability in currency, coin is deposited in reserve by governments, private individual and companies to be exchange when need arises. A countrys development is pegged on the amount of golden in its reserves and is used to determine the value of a countrys currency. With a good reserve of gold, scotch stability is realized alongside stable commodity prices in a country (World Gold Council). The linked States ties its dollar on the price of gold and gold in its reserves which in turn the transnationalist community tie their currency against the value of the US Dollar. This explains the reason why the dollar is the widely recognised means of foreign exchange against all currencies in the wor ld. Before 1971, gold was the only exchange standard. Since then, international cooperative monetary system has been used. Instead, it has re main(prenominal)ed trading in the international markets freely, with forces of demand and supply determining its mean price just like any other commodities. Though it has been replaced by international monetary system, gold still enjoys about 13% official reserves around the world as a floor reserve asset. Gold as a commodity has been trading in the international market, often taking high prices in times of economic turmoil. When the international financial markets are in great upheaval, traders taciturn the socks and other financial instruments to save the devaluation of the positions in gold reserves. For example, when the prices of stocks or other forms of securities are falling, traders resort to get gold. This takes to the hypothesis that, when the price of stock index is falling, the price if gold rises. Over the recent past, at th at place has been nipping increases I the prices of gold as most of the major financial markets were faltering around the world. This is so because gold has been seen as a substitute investment instrument to the financial system. Currently the price of an ounce of gold in the international market is about $1,608. S&P 500 is one of the major indices in the United States that can be used in this study to compare its performance against that of gold. To get the blood in movement and to proof the hypothesis quarterly performances can be looked at with a main focus in the pre and after 2008 financial crisis. The explanation to the relationship that can be adduced is found on the graph. S&P 500, alongside other indices in the United States like Dow Jones Industrial Average (DJIA) and NASDAQ, moderate been observed to be inversely correlated with the price of gold over time (World Gold Council). When there is exists uncertainty in the economy and by extension the financial markets, inve stors tend to offload their positions in stocks and other securities to buy the save haven gold. Gold has been taken as the ultimate safe haven as explained earlier. When there is an imbalance between supply and demand for shares, the prices leave behind any pick up or tumble depending on the two forces. When there exist jitters on the stability of the economy which will affect the performance of the listed companies in the securities exchange the shares will drop in their valuation. Investors buy stocks expecting to get returns either from good dividends or appreciation in the share prices, increasing the net worth of an