How much gold exists and where is it within the economy - Free Essay Example

Gold is determined by the inflation, the U.S dollar and U.S. stock market unpredictability. Gold has always held a special charm and fascination in peoples minds. Possibly it is the colour, weight, or the fact that over time it has come to symbolize an elemental resource for value and wealth. After a small research on the World Gold Council website, we can found that an estimate which pegged the total amount of mined gold from old era to the present, calculated at 158,000 tonnes. This is a very large number, but one thing is very difficult to get close to peoples heart. It can be shared through the population of the world and there are approximately 23 grams per person and is about 1.2 cubic centimetres each. This is equivalent to about $250-$350 per person value of the earth and is according to current prices. Now, we would like to describe how does one tonne of gold look like? There has been 158,000 tonnes of gold have been recovered from the earth and we assuming that is in 24K form of purity, and then will be converted into 5,079,817,925 troy ounces. If a cubic centimetre of 24K gold equals to 19.3 grams, and then a cubic meter of gold would weigh 19.3 tonnes. Likewise all the gold ever mined would amount to 8,187 cubic meters. Lets say all the gold in the world able to fit in a 20.15 meter cube, or 66 feet 1.3 inches square,ÂÂ  and then it will be the size of a small office building.ÂÂ  There are between 120,000 and 140,000 tonnes of gold now in the world. To imagine a single and pure gold cube with edges of about 19 metres which thats all that has ever been produced. The length is about 3 metres short of length of a tennis court. It is about 3 metres long of the length of a tennis court. In reality, a considerable number of 19 metres is shorter than a tennis court, and include all private holdings of gold coins, bars and the world jewellery. The worlds monetary gold reserve is a block of one quarters of that particular volume whereas Americas gold reserve is only one quarter only. Nowadays, there is not enough gold left in the ground. There are generally about 50,000 tonnes not yet un-mined and will charge an extra of $300 an ounce to mine the gold. After the detailed worldwide reviews, the mining industry compromise that huge mineral deposit found out that they are a thing which from the past. It can be shared amongst the population of the world and there are about 23 grams per person, about 1.2 cubic centimetres each. This is equivalent to $250-$350 per person and it will rely on the current price also. What is gold worth? The cube value which likes a short tennis court is about $1.8 trillion. By contrast, the U.S government spent $690 trillion until Year1971 was partially supported gold sovereign debt. The United States gold reserves are more than 8000 tonnes which is about 6% of the total gold mining. So, it is worth approximately $100 billion or 15% of the U.S national debt. The cube value, $1.8trillion is one fourteenth of the international bond market. $26 trillion is the western government of ruler debt constituted about two third and almost all the debt have emerged. Since Year 1971; government announced the first notes and that time government borrowing without any alert. At the present value, the gold content that will be pay is about 7% of paper based international bond market. However, the 75% of the worlds gold is not provided enough to the governments. They are being held as a private jewellery, gold and gold coins. The worlds gold is only 30,000 tonnes which is 1% of the worlds sovereign debt that was held in central bank as gold reserves. At the same time, gold stock that in the world including the majority of personally held. The underwritten risk is far less than one half of 1% in the global financial derivatives market. Nowadays, people have a strong reliance in paper notes. Investors have evaded gold for almost twenty years and at the same time as the value of gold based on financial assets has been blow up. Who owns the gold? The central bank vault held about 30,000 tonnes of the worlds gold which is 20 to 25 in percentage form. The Major Central Bank Reserves are shown at below: Nations and institutions Reserves (Tonnes) USA 8139 Germany 3469 IMF 3217 France 3025 Switzerland 2590 Italy 2452 The one that remain of gold jewellery which is about 70,000 tonnes to 80,000 tonnes, coins and personal owned bullion which about 20,000 tonnes is held by individual in the society. After the main holders that shows above the diagram, the total for others countrys central bank falls speedily. Most of the central bank just holds a hundred something tonnes and they make up about 30,000 tonnes together it. The beginning of Californias gold speeding in Year 1848, there has 90% of the gold on the ground had mined. South Africa is the worlds biggest produce gold which has the average production cost, $238 per troy ounce. The worldwide average production cost is $300 per troy ounce which estimated by Federal Reserve Board. Modern machinery and chemicals have declined the price of gold while its price is going to be raised. Why Investors Own Gold? First, lets talk about gold. The price of gold determined by the changes of supply and demand and this can affect the spending of consumers. Gold is unlike from other valued metals, example, platinum, silver, diamond and palladium. This is because the demand for those valued metal mainly appeared from the industrial application. At the beginning, gold is produced for treasure. Now, gold become worldwide acceptance that as a store of value and at the same time it is money also. Relative to other commodities, gold as we know that, it will not expire, blemish or rust and there are no substitute good for gold. There is no difference between thousands years agos gold mined and todays gold mined. In the future, we believed that although the U.S dollars currencies hit great cash in monetary history, the gold still can remain its place in the Global Financial System. The value of gold will raise compare to most national currencies. When East Central Bank buying outstrips West Central Bank selling, and it will in the not-too-distant future, the other remarkably bullish fundamentals for gold will take over and drive the gold price to levels that most people can scarcely imagine today. (John Embry, Investors Digest, March 4, 2005) There are 6 reasons showed that why investors want to own gold: As a hedge against inflation As a hedge against a declining dollars As a safe haven in times of geopolitical and financial market instability As a commodity, based on gold supply and demand fundamentals As a store of value As a portfolio diversifier As a hedge against inflation Why gold known as a hedge against inflation? When inflation goes up, the price of gold will increase also. The highest inflation in U.S was Year 1956,1974,1975,1979 and 1980. The averages real return on gold was 130.4% during those five years. To create perfect inflationary storm, there are few factors are scheming, which are government tax cut, a huge trade deficit, declining in dollars and Americas status as biggest debtor. Commoditys price increase regard to the weakening of U.S dollar. There will be no doubt that oil prices will affect gold price although the both not exactly reflect each others. If oil price increase or decrease, investors can anticipate an equivalent effect in gold price. Nevertheless, gold is still being mined and advanced at the rate of almost 2,600 tonnes for every year. So, the world gold supply above the ground is going up. The rate of gold supply is rising at about 12 centimetres annually. Thus, after 20 years more, gold will reach a full tennis court siz ed cube. For extra information, in 1968, there have 2 upward movements in the gold price. The first one took place in Year between 1972 and 1974 when the oil price up to 325%, which mean $2.44 to$10.36. At the same period, gold price rose again to 268% from $47.75 to$174.76. The second one for the price happened between Year 1978 and Year 1980, means that oil price increased about 105%, from $12.70 to $26.00. Gold price went up 254%, which from 4178.33 to $631.40. As a hedge against a declining dollars Any declining in U.S dollar will affect the price of gold to goes up or down as gold is bought and sold in U.S currencies. As a safe haven in times of geopolitical and financial market instability Even America is the only superpower in the world, but there will be numerous of trouble decaying the whole world. Gold also named as crisis commodity, it able to perform better in other investment when the time of people worry a lots. On top of that, when dreadful economy comes, the bank for sure falls badly. For those poor bank also will bring down the whole economy. The combination of the universal economy for economic and banking has to stable back the world economy which is a most vital thing to the world. When crisis happen, people will change their mind, disbelieve to paper notes and start to trust gold as a safe haven. Government save themselves by making their money currency become worthless and let gold more valued. Gold will always gives government more secure as gold will rise if the government is in lowest situation. As a commodity, based on gold supply and demand fundamentals Gold mined, copper, lead and other metals are declining. It found difficulty in release new mines as the production of the process takes about 7 year times and also difficulty to cope the supply rapidly. South Africa is the biggest gold producer in the world. Since 1931, South Africa drop to the lowest stage due to high price in gold for already 16 years. As we know that, India is the biggest country that purchasing gold in the earth. Chinas is growing rapidly in economy. Both countries have the freedom in their laws and regulations regard to the golds import and export that will help purchasing gold in a numerous amount. China is expected to be the second biggest developed country by Year 2020, which the economy is growth is 9% per year. American consumes more on Chinese products which is $162 billion for last year. Lately, the 4 majors commercial banks in China acknowledge selling gold bars to people after they had passed the countrys regulation. Before the acknowledgement, people only can purchase gold-backed certificates from the bank only. As a store of value Gold is an asset that can always remain the same value on it, which mean its value will not vanish when market collapse. So, this is the attractiveness for people who owned gold. The price of gold is unpredictable in short term, however gold able to maintain its value. An economist, Stephen Harmston of Bannock Consulting had made some comment in a 1998 report for the World Gold Council. As a portfolio diversifier Lastly, investors would like to expand their portfolio, the most efficient way to diversify portfolio and keep the wealth that formed in the stock and financial markets is invest towards assets that adversely corresponded with markets. This is why gold will as a portfolio diversifier because it is an adversely corresponded asset to the stock markets. Mostly investment advisors known that portfolio diversifier can better the portfolio performance. Searching investments that are uncorrelated to each other is the way to diversification. In order to the risk reduction, most of the investors combine asset like gold with stock and bond. The reason is stocks and bonds are fairly directly corresponded with each others. Gold had a low correspondence with bonds and stocks previously.Gold is significant for a diversified portfolio due to the reaction of price. Gold also allocation as a hedge against the corrosion of purchasing power of paper notes consumption by people. Gold still underground Those un-mined gold shows in the mining companies as reserves where any of the reasonable and confidence that can be extract economically. The reserves that remain are about 40% of the total of gold above ground which is about 50,000 tonnes. There are 50% of un-mined gold which is the worlds recognized stock in South Africa. According to Metal Economics Group, the main gold producers increased their reserves that had reported to 719.7 million or more than 22,000 tonnes at the end of 2005. If 10% recovery of losses when the extraction of ore, which mean it is equal to 14 years level of gold production in Year 2005. Inelastic supply Inelastic supply also can say as inflexible supply for gold. This is because gold is hard to find a substitute for it. For gold mined production, it really need long times, usually 5 years times and require a lot of money. This will result the supply curve of the gold equation be constant. When there is a roar times, everyone is courage to invest in and will takes a great period in gold mined production at the end. Then, a decision will make on excess inflated for the price that will be attain in the end. However, there is an inclination to ensuing over-production for the attainable price. The golds price roar in Year 1979 and 1980 brought up growing production from bottom to the peak of 1200 tonnes to 2600 tonnes in Year 1999 respectively. All major countries producing excluding South Africa that considerably increased production in this period. Once the production started to falls, gold mined will also become worthless. The undistinguished gold market resulted in reduction for the investigation. Hence, a lesser number of new gold mined waiting to be produce than demands anticipation from the market. Physical gold quantities The table below showed the comparison of kilogram quantities for gold with monetary values, spatial volumes, and meaningful human measurements. Kilograms Value @ 390$ / Oz Litres How much 0.008 $100 0.00041 A British sovereign coin 0.031 $390 0.00161 US Eagle / Canadian Maple coin 0.100 $1,254 0.00518 0.500 $6,269 0.02591 1 $12,539 0.0518 1 kilo a golf ball sized sphere 2 $25,077 0.1036 3 $37,616 0.1554 4 $50,154 0.2073 5 $62,693 0.2591 6 $75,231 0.311 A can of Coke 7 $87,770 0.363 8 $100,309 0.415 9 $112,847 0.466 10 $125,386 0.518 12 $156,000 0.645 A standard 400 oz bullion bar 20 $250,772 1.04 A litre bottle of water 50 $626,929 2.59 100 $1,253,858 5 A good sized deposit box 1,000 $12,538,580 52 10,000 $125,385,802 518 Half a cubic metre fits in a corner of a small bank vault. 100,000 $1,253,858,025 5,181 ÂÂ   1,000,000 $12,538,580,000 51,813 A small living room and more than twice Britains gold reserve. 8,139,000 $102,051,504,000 421,710 The US gold reserve fits into a town house.ÂÂ   Fort Knox is mostly empty space! 30,000,000 $376,163,190,000 1,554,404 The worlds total financial reserve of gold (central banks + significant global financial institutions) 100,000,000 $1,253,858,024,000 5,181,347 The approximate total of all privately held jewellery, bullion and coin 140,000,000 $1,755,401,234,000 7,253,886 All the gold in the world A block with edges 3 metres short of a standard sized tennis court. $7,000,000,000,000 The current US sovereign debt (which excludes future pension and health obligations, none of which have been reserved against in the public accounts)