Topic-Gold stocks and index performance comparison Research Paper

Topic-Gold stocks and index performance comparison - Research Paper Example When a country’s currency devalues significantly, gold held by central banks and Federal Reserve can be used in trade as a means of exchange to facilitate trade. For governments to hedge against instability in currency, gold is deposited in reserve by governments, private individual and companies to be exchange when need arises. A country’s development is pegged on the amount of gold in its reserves and is used to determine the value of a country’s currency. With a good reserve of gold, economic stability is realized alongside stable commodity prices in a country (World Gold Council). The United States ties its dollar on the price of gold and gold in its reserves which in turn the international community tie their currency against the value of the US Dollar. This explains the reason why the dollar is the widely accepted means of foreign exchange against all currencies in the world. Before 1971, gold was the only exchange standard. Since then, international cooper ative monetary system has been used. Instead, it has remained 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 Though it has been replaced by international monetary system, gold still enjoys about 13% official reserves around the world as a cornerstone reserve asset. Gold as a commodity has been trading in the international market, often fetching high prices in times of economic turmoil. When the international financial markets are in great upheaval, traders dumb 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 buying gold. This takes to the hypothesis that, when the price of stock index is falling, the price if gold rises. Over the recent past, there has been sharp increases I the prices of gold as most of the major financial markets were falteri ng 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 relationship 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, have 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, investors tend to offload their positions in stocks and other securities to buy the save haven; gold. Gold has b een taken as the ultimate safe haven as explained earlier. When there is an imbalance between supply and demand for shares, the prices will either 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

Analysis of Globalization Essay Example | Topics and Well Written Essays - 1250 words

Analysis of Globalization - Essay Example   First of all it is necessary to mention that globalization has both positive and negative impacts on contemporary world, and exactly nowadays it is difficult to find a more fashionable and debatable topic than globalization. Different conferences and symposia, hundreds of modern books and thousands of articles are devoted to it. Scientists and politicians, businessmen and economists, religious leaders and artists argue about it. The subject of lively debate is literally everything - what the globalization is, when it started, how it fits with other processes in public and economic life, and what its immediate and long-term consequences are. However, the abundance of approaches, opinions and assessments do not guarantee the deep study of this fundamental issue. Globalization is considered to be a difficult question that is not difficult only for mass consciousness but for scientific analysis, too. Thus, it is waiting for a thorough study and we are going to begin its discussion fr om the perspective of economic inequality. Thinking about economic inequality through the prism of globalization it is necessary to mention that the main consequence of this is the global division of labor, migration across the planet's capital, human and industrial resources, the standardization of legislation, economic and technological processes, as well as the convergence of cultures in different countries. It is an objective process that is systemic in its nature and that covers all the aspects of society. Globalization is associated primarily with the internationalization of the entire public activity on the Earth (Gumery, 2006). This internationalization means that humanity is a single system of social, cultural, economic, political and other relations, interactions and relationships in the modern era. For example, including all the countries and nationalities, epochal events and changes that happened in the world at the end of the last century we recognize globalization†™s influence. Humanity now lives in the ‘world community’ where a single country or a group of countries cannot be fully fenced off from each other. Globalization deeply leaves roots in the history, and, however, it is considered to be the phenomenon of the 20th century. It is obvious that the processes of globalization of world economy observed in recent decades, have conflicting implications for the economic development of many countries. Currently two opposite points of view on globalization as a factor in the balanced development of the world economy co-exist. According to the first position, globalization is a ‘zero-sum game’: it gives a gain to relatively more developed countries, and it gives losses to less developed (developing) countries.  Ã‚