The yellow metal formed a strong concern for mankind since ancient times, because of its features; as described by some of them, (the eternal metal) the fact that its luster and its composition stands in the face of time , and the variables of nature and does not change, there is no oxidation to affect it, not even concentrated acids, except “royal water” , which is a mixture of nitric acid and hydrochloric acid, and alchemists called it by this name, because of its ability to dissolve precious metals such as gold and platinum. These characteristics of gold made him a very valuable material since the beginning of civilization that the crowns of kings and jewels of women and statues of pagan gods were made of it as a symbol of continuity and eternity.
The gold was used as a financial system used as a base to determine the value of the currency, and the country that adopts this system converts any currency to gold after to agree to adopt a fixed price to sell gold and buy it.
The United Kingdom was the first country to adopt a base of gold cover in 1821 and then after that many Western countries followed it, and since 1930, the role of gold in the global currency systems was diminishing, and its impact was disappeared in the late seventies of the twentieth century, and the benefits of gold cover system that inhibits inflation.
It is a well known , scientific and economic law that it has its role in the old monetary systems, known with a name of the adviser of the Queen of England Sir Thomas Gresham who has founded it. Gresham’s law is a monetary principle stating that “bad money drives out good ‘in currency valuation, Gresham’s law states that if a new coin (bad money) is assigned the same face value as an older coin containing a higher amount of precious metal (good money), then the new coin will be used in circulation while the old coin will be hoarded and will disappear from circulation.
Gresham has observed this phenomenon in his country , England , when the new money was coined to replace the old money , the old money soon disappear from circulation, and the reason for this that the two types of money have the same power of purchasing itself , it makes the person free to choose to pay his debts or cash payments either by bad or good money , it works for him to repay it by the bad money to retain the good money away from trading in the market, and not used in payments only bad money, and for the same reason , the creditor be binding to accept it , but if creditors refused that and asked for the good money , the law will work in reverse, so that the good money is to expel the bad money, and the good money is used usually; to settle foreign debt, treasuring and savings, industrial purposes, and the conversion to the alloys.
The cases applied this law:
• If the new money replaced the old money, the old coins start to disappear from circulation on the market, and the only new money remains, and there was such phenomena in the Middle Ages when the rulers were coining the money of different weights less than its old weights whenever the economic conditions were troubled in their country.
• If a cheap paper money was found in circulation along with metal coins, the first expels the second from circulation in the market, and this phenomenon was spread during World War I, when the gold coins disappear whenever a cash issuance was produced of cheap paper.
It should be noted that as long as it was possible to exchange the paper money with the key metal money, the value of the two currencies remain one, as in fact that there is only one coin which is the metal, and that it is sometimes circulated as a metal currency and sometimes as a paper currency paper, if it is decided to the inability of the paper money to be exchanged with the metal money, then the paper money will become bad and disappear in front of metal coins that are good money.
• If the freedom to coin the money is available in both metals gold and silver on the basis of certain legal percentage, then this ratio became not consistent with the commercial market prices, the metal coins which its value was declined in the market soon to expel the other metal, this phenomenon has spread in countries that have been following the bimetallic system.
Factors that affect the rise in the price of gold
the values of the standards of gold under the old monetary system were equal to its paper value specified from the value of gold where individuals can replace paper currency with another gold. This era was ended on August 15, 1971 when it was given to governments the freedom to print a lot of paper money as they see fit.
Today, the price of gold is set by the Gold Stock Exchange and is performed by a meeting of five members twice daily in London to determine the value of the price of gold.
People can invest in gold directly through owning gold bullion or other, directly such as investment certificates or shares. As is the case with most other forms of the investments noting that the gold is affected by market supply and demand When increasing the supply and lack of demand , the gold prices goes down , and vice versa at the lack of supply and increase the demand for gold , the gold prices goes higher, and fortunately gold taken for thousands of years still exists today .
In times of national crises such as war or disaster, the price of gold tends to significantly increase; as people begin to fear that their currency paper may not have a value and therefore resort to gold where they see the gold originally constant that can always be used to buy food and other necessities.
Another common factor in influencing the rise in the price of gold which is the success of the real estate market, because when there are low or negative returns on the real estate sector, the demand for gold and other commodities are usually expected to increase.
Finally, banks failed during periods of crisis in the management of investment asset, as occurred during the Great Depression when gold prices rose as a result of the failure of banks in the era of President Roosevelt to impose a ban on gold contracts by ordinary citizens.
It is well known that investing in gold is one of the means of hedge and safe haven in times of danger, to preserve wealth against the weakness of paper currency and in times of political and economic turmoil and unrest of exchange markets, in addition to the inverse relationship between interest rates on deposits and the price of gold, as interest rates fell to levels of zero percent in many countries of the world during this period as a result of expansionary monetary policy to deal with the negative secretions of the crisis, contributing to higher demand for gold .
And the gold price has become as an index to the confidence in the dollar as the price is on the opposite line to the dollar as it whenever the price of gold rose, that index to a decline in confidence in the dollar and the high level of risk in investing in traditional financial assets and in sovereign debt bond also encouraged the appetite for gold, noting that the price of gold rose about four and a half times over the ten years since 2001.
The rise is continuing for gold as it reached 28% and the sustained and upward gold market since several years ago contributed to the widening of investors and speculators base in light of the negative global financial crisis effects so that the gold has become one of investment assets , which led to bypass purchases of investors of gold on the world, to the purchases of jewelers for the first time since three decades ago under a strong marketing campaign of rare metal targeting for the continuity to raise its price.
And a large number of financial advisors advise the investment Portfolio managers to invest not less than 5% of the total investments in gold in order to diversify risk and return, and where such advice before the decade is irrational and the fluctuation of the price of major currencies encouraged central banks also especially in emerging countries to buy more gold to boost its reserves and diversify it so some sources indicated to the plans of the Chinese government to increase its reserves of gold five times in five years ,and its possession of traded gold funds jumped in 2009, 2010 of gold to record highs, so that it has become the sixth largest owner of gold after the central banks as the actual purchases of gold in the markets of Asia and in large quantities, especially in India and China increased the strength for the demand on it .
Also, quantitative easing measures by the United States for continuity to cut the dollar exchange rate and to cut the interest rates also led to resort to gold as the keeper of wealth and it is remarkable that the rise in confidence in gold level led the speculators and investors to accept any rise in its price and ignore the risk which is explained by some analysts as a pointer to the temporary height for its price in the formative stage and the explosion is linked to the conditions and factors affecting the composition while taking into account that there is no investment asset price to continue to rise indefinitely.
And the expectations of some of the global investment banks suggest the continuity of its high price that some of them estimated its rising to $ 1650 and some 1,800 dollars and that the movement of the price of gold associated with the development of the global economy and hence the high level of interest rates and the high dollar exchange rate and the decline in the dangers of sovereign debt , all are factors that lead to a decline in demand for gold Although the investment in gold is only 2% of the total global invested capital .
The number of experts and specialists in industry and trade of gold agreed that there are major factors to determine the prices of gold in the global markets and the domestic market and they are: the trends of investors and the price of the dollar in global foreign exchange markets, in addition to oil prices and financial and political tensions, as well as reserves with the central banks of gold, in addition to the supply and demand of gold in the market.
And the interest of investment funds in commodities , including gold and this is a key factor behind the rise in gold prices to historic levels due to attract more investors in recent years under the volatility of capital markets and exchange markets.
And the dollar price in the global foreign exchange markets plays a key role in determining the direction of gold, at a time when declining the price of dollar the prices of gold are rising.
The oil prices are the third of the most important factors that are to determine the gold prices in the markets, where gold is strongly historically linked to crude oil prices as the precious metal can be used as a means to curb inflation, which the oil is the main reason for it.
The financial and political tensions, such as the major «financial or political crises» are also factors determined the price, because gold is a safe haven in those times.
Then comes the size of the central bank reserves of gold as one of the factors affecting in determining the price of gold, where buying or selling gold by banks affects the prices, and the most important factors affecting in determining the price of gold are supply and deemand, but generally does not play a big role in determining gold prices because of the large inventory which have been extracted, and is now estimated at about 160 thousand tons «more than 60, for example, of the annual production of mines.
the relationship between gold and oil prices raised debate widely in global economic and political circles several times, due to its features and elements they enjoy that led them to the top of the world market, even in the event of the decline and fall of any one of them noting that the petrol is of great importance to the economic growth of any state, in addition that it played multiple roles which have had an impact in international relations that were shaped by tense and mystery.
Gold is known of its global economic reputation; for being one of the most precious metals, which everyone agrees on a different orientation on the acquisition of it , in addition to that individuals sought to have it for their sense of pride of possession of it and use it as a safe haven in times of crisis and war, therefore, gold and oil had gained great attention by the specialists since their discovery in view of various economic relations between them and many other economic variables and in light of this, the importance of studying the relationship between gold and oil comes and the necessity to clarify it so that it can to determine the effect of each other.
a lot of experts and specialists tackled this relationship since times ago, and reached that there is a perception that the rise in gold prices has a close relationship with energy and oil prices, from the premise that the price of oil related to the productivity of most commodities because it is part of the cost of any commodity components, whether transport or production or others , upon the occurrence of any changes in prices, this affects the local economy through the creation of changes in the prices of domestic goods , whether the change to rise or decline.
In the case of gold , which is an important strategic commodity preserving of wealth , so to say that the existence of a relationship between gold and the oil are not arbitrary, the greater the oil price , the increase in gold prices occur, and for us to imagine how this relationship occur and can be summarized in the following points:
First, through observations and analysis, it is clear to us that when gold prices are risen, jumps in oil prices are occured. At the time the oil achieves high prices, gold prices were moving in the same direction. This is evident through our analysis of the prices of gold and oil. At the beginning of 2005, oil prices reached high levels exceeding fifty dollars barrier, even amounted to about $ 60.55 a barrel.
At the same time gold prices were continuing to rise until it reached about $ 428.93 an ounce, then the price of the barrel in October to $ 93 and the price of an ounce of gold to $ 777, that high oil gauge pushes gold to the upside.
Second, high oil prices lead to a rise in the outcome of the national income-producing countries, leading to a rise in people’s income level, which in turn leads to a higher standard of living, which allows for individuals in this case, the resources to be spent on satisfying the basic and necessary needs, and then heading towards satisfying their need for luxuries such as gold, increasing demand on it and thus rising its prices, in addition to the use of it as a secure and important tool for the investment and reserve for the future , away from the problems that result from investing in stocks, bonds and speculation.
Third: Another factor is no less important sometimes senior speculators in the global stock of gold resort to raise its prices in their desire to absorb the increase in the proceeds of oil revenues resulting from higher oil prices, and in this context, it should be noted that the rise in gold and oil prices have factors and determinants associated with the extent of the rise or fall in the prices of each, beyond the scope of supply and demand.
Factors to determine the rise in the price of gold:
Production shortage comes first, leading to a lack of supply due to some producing countries are stopped to increase production of gold for several reasons.
Here it is noted that there is an inverse relationship between the offered amount of gold and the price, the decline of the supply, the price rose, and vice versa. In addition of the effect of lower interest rates in gold prices.
It is certain in the event of low interest rates individuals to turn to transfer cash savings they have to gold , from the premise that gold is characterized by constant value even in times of crisis and the outbreak of wars and international unrest, affecting the performance of the global economy as well as the possibility of influencing the price of gold to rise by increasing the amount of reserves existing in developed countries, in the event of motives and political influences on the part of these countries.
As for the reasons for the high oil prices, mainly includes the following: lack of productive capacity and weak stocks in countries outside «OPEC», in addition to fluctuations and political changes that play an important role in high oil prices, as happened at the beginning of the US invasion of Iraq, also speculation in the oil market plays an important role in determining prices, as well as the ability of refineries to secure a sufficient quantity of the market, and security unrest in some producing countries, and fears of military actions, such as those suggested by the Iranian nuclear situation, the Turkish military crowds on the Iraqi Kurdistan border and so the links between gold and oil are a close link, noting they are strategic commodities influenced by periodic shifts, especially in the areas of production.
American Center ‘s decision on raising interest rates remains, as it is expected to slow down the pace of raising interest rates by the Federal Reserve Board, and that US interest rates rise slightly, which are some of the factors taken into account in the expectations of gold for the year 2017.
This is due clearly, in contrast to the policy followed between the federal and basic central banks, because the Fed stopped any stimulus plans, while central banks are continuing to expand their proceedings in the stimulus process.
Gold was in 2016 achieved a strong rise process, despite geopolitical concerns in the Middle East and the exit of Britain from the European Union, and concerns in some major currencies, and falling of stock markets and the revenues of sovereign bonds of major countries.
But the pressure is back again on the price of gold with the expectation of higher interest rates on US dollar prices, in light of economic performance which is acceptable by US. The dollar’s strength is reflected negatively on the gold, because it switches off the yellow metal luster in the eyes of investors as an alternative asset. And make the purchase of metals with the dollar especially the gold of high cost, especially on the holders of other currencies.
It is expected that the prices of gold are slightly to continue fluctuant during the rest of this year, for reasons related to the raising of US interest rates, and what would have on US President Donald Trump’s policy, and it is also expected that the investor fears of gold to continue, and its reflection on the buying and selling at the end of this year.
the price of gold in the first quarter of the year witnessed a steady rise relatively with the demand of investors to it as a safe haven, because of concerns arising from Britain’s exit from the European Union, the new amendments that will occur on the interest rates, as well as geopolitical concerns in the Middle East and other regions of the world. As well as the relative recovery is expected to be witnessed by demand from China and India, with references to the partial recovery of these economies.
Expectations indicate that gold prices will rise 15%, with expectations that higher interest rates will be limited, as is also expected that the dollar will continue to be down, which will prompt central banks to form reserves of gold rather than the dollar, which will push prices to rise further, as It is expected that the gold price to touch at the beginning of the first quarter of 2017 1400 dollars per ounce.
Features of electronic currencies:
with tremendous scientific and technological progress, the trend towards electronic transaction has become the focus of the countries, where the invention of the bank card to replace manual dealing by paper currency and thus preserved it from damage, and the bank card charged with a certain amount of money that you can use them whenever you want , or you can use the other way through that you have a credit card or a bank account to transfer money via the internet or e – mail to different addresses as happened in the case of the famous service of PayPal for example.
This trend is creating what is today called electronic currencies, these currencies are not currency issued by the central bank, and they do not have any real physical representation, but are just lines of software algorithms and algorithms written and loaded on the Web, which is also like other currencies that its purchasing value is determined by demand and supply.
Some were surprised by the presence of demand for these currencies because they do not have a physical representation, but we can answer this question that e – currency has features not found in the others, let’s take , for example , most famous of these currencies (Bit coin) which are Crypto currencies .
This currency gives an absolute privacy features to the user, no one can know which transactions can be carried out and a source or direction of any conversion process can not be disclosed , and thanks to the use of technology of bulbar direction to encrypt processes, what are the dark network (dark web)? It is an area of infrastructure containing some of the criminals or escapers from the community, and more importantly, they are not subject to the control of law and access to it is relatively difficult. The dark network is part of the deep network, thus part of the Internet , but access to it needs to software or special settings and sometimes needs prior authorization to reach.
Coin Bit coin achieved the highest level of exchange in the beginning of 2014 exceeding the threshold of US $ 1100 threshold
،the Bit coin will reach an exchange rate higher than 4000 USD by the end of day.
Goals of Bitcoin A (cryptographic)
the encryption currencies designed to allow users to send money to each other on the Internet via or Peer-to-Peer network without the need for a central authority to monitor the payment and transfer operations, while maintaining of its unknown destination .
Currency of encryption does not require opening any type of account, all you need is to activate the special application of the currency you want to use it which it shall generate an important “title” to be used to send and receive remittances, of course , it will not appear to have any Cryptographic currencies as soon as you activate this application, and you will need to convince the one who owned it to give you or sell you some of the currency in his possession, before becoming able to carry out the payment through these currencies.
You can also to get currency of Cryptographic through mining process, but it is hard and long and would not give you the results that aspire to it without investing a private equipment for mining in it.
Al-Bitcoin is not the only cryptographic currency on the web now, but it is the first currency of its kind and the most famous and widespread, as there are about 60 currency, 8 of them were described as the main ones; depending on the number of users and the structure of each network, and places that can be replaced and the purchase of these cryptographic currencies against other currencies.
Unit Economic Studies
Translated by: Mudhaffar al-Kusairi
Rawabet Center for Research and Strategic Studies