Is gold provides protection against inflation?

Japanese Stock market pushed Comex down

Gold investment as an asset that is already sterile, does not generate any investment returns, and then applies this concept to gold.

How, then, know that gold is already a bubble forming? Let’s go back again to the calls which it is based on investing in gold.

Speculators in gold are focusing on that gold provides protection against inflation, which preserves the purchasing power of wealth, according to this argument assumes that the prices of gold trading inflationary trends, which makes the parent provides protection against inflation, it is assumed that the prices of gold a currency (U.S. dollar, for example) commercial developments in the general level of prices in this currency, and then as long as the price of gold commercial developments in the general level of prices, the gold does not suffer bubble price, but if deviated price of gold is clearly on the developments in the general level of prices, the gold will suffer a bubble forming in this case.

To identify trends in gold prices in dollars (average price during the year) for the general level of prices the U.S., the figure (1) illustrates the developments in the gold price compared to the general level of prices in the United States during the period from 1900 to 2011.

Note the shape deviation of the gold from the general level of prices clearly during the period from 1978 to 1980, which led to the formation of gold bubble first in 1980, when the price of an ounce of gold higher levels at the time, $ 800, in the wake of rising oil prices crude to unprecedented levels as a result of the Iranian revolution and the war between Iraq and Iran.

However, the gold bubble burst in the same year and returned the gold to drop to less than half the levels later in the year 1982.

Also, starting in 2002, took gold prices to drift back on the developments in the general price level, more than ever.

However, the figure shows that all the abnormally high in the price of gold must be followed by the correct attracts this price to the price of the general trend, but the figure clearly illustrates an important fact confirmed by speculators in gold today, namely that if the current price of gold is expensive is natural to him, So why the patch did not happen that restores to normal levels of gold? Of course this is a good question, but it is not free either naivety or misunderstanding in the analysis.

About what all dealers in gold, there is no such thing as a bubble price of gold, and gold prices to remain high rise forever, gold is the best shelter in the face of inflation, and that the demand for gold will continue to rise in the future.

However, the continuing drift direction of gold prices for the general price level for a longer period this time, as is well known, due to several factors, most notably the continuing factors of uncertainty in the global economy since the attacks of September 2001, which is followed by a crisis in the housing market in the United States, which turned into a crisis global financial, and then to the crisis in the real economy, where widespread recession in most parts of the world economy, and in response to the crisis has adopted the central banks of the world’s financial policies and monetary expansion, ended crisis sovereign debt, then the crisis of a decline in growth now, and so goes the global economy crisis to another.

  • mohamed

    what a great article but is it the same in Egypt