The Role of Gold in the Economy - Paper Example

Gold is listed together with other assets such as vehicles, land, and machinery among other tangible items. However, gold continues to play a major role as a standard of value even in the current marketing society. All gold have immensely remained valuable to many governments in the world. Every central bank of any importance usually holds and buy gold as a means of storing their universal paper money. The aspect has made gold to retain its value despite passing through many generations that use different aspects to measure on its values. The article involves a detailed explanation of the role gold play in todays marketing economy. The article will also include a statement of the reasons that have made gold to maintain its value despite the fact that money being the main measure of value (Hashmi et al. 2012)

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Measure of Value

Despite gold being categorized as other forms of assets, it utilized in the market economy to measure a value of other items. Many central banks in the world continue to amass gold and equate its value with the US dollar. According to Hashmi et al (2012), the aspect enables gold to measure the amount of items about the US dollar. The aspect has also been accounted by the fact that gold has been having a stable value and not affected by the fluctuation in the market economy. For example since the end of the World War II till 1997 an ounce of gold has been equated to 35$. The stability of gold regarding value enables important central banks to measure the value of items and property such as land regarding color. The aspect of the usefulness of gold as a measured value was accounted by the expansiveness of the world war. The more the war expanded, the significant central bank was amassing gold and storing it as the measure of the value of items. The aspect accounted for its stability in the market economy. The point has made goods to be estimated their value regarding gold.

Measure of other Currencies

A money refers to the means of exchange of value that is used in countries. In other words, a currency relates to a system of money that is utilized in a particular country. Gold have played a vital role in estimating the value of a country`s currency. During the World War II, gold maintained its value throughout the war. The aspect caused it to be used by central banks to measure the value of different currencies. Since the end of the world, war governments vowed to be buying one ounce of gold at thirty-five American dollars. (Hashmi et al. 2012)

The aspect made the value of the dollar to be standardized as the value of gold was not changing its value. The standard dollar value has thus been useful in measuring other currencies in the international markets. The stability of the dollar has thus been due to the unchanging value of gold. The aspect thus has been useful in the entire market in the world to measure the value of other currencies.

Safe Haven

Most traders and governments utilizes haven to store their funds especially in cases where the economic climate of their states experience turmoil. For an extended period, the American dollar has been used as a store haven for various currencies. The aspect is because the dollar has not been affected by the fluctuations of the world economy. The changes in the global economy change leaving the American dollar stable. The aspect has caused other currencies to be measured regarding dollars. In such countries, when the economy faces such fluctuations, most investors in the states convert their money into dollars and reconvert them when their currencies gain value about the dollar (Capie, Mills, & Wood, 2005).

According to (Capie, Mills and Wood, 2005), the gold has also been utilized as a haven as its value remains stable as the dollar. In states that experience fluctuation, investors as well as governments buy gold and store it until the time their staet1`s currency regains value about the official currency. The aspect has made the gold to add more value and attracting more investors more than the American dollar. The weakening of the dollar has caused even many governments in the different state to use gold as their haven. The central banks of these countries thus use gold to store the value of the economy.

Gold as Insurance

Insurance is a means of protecting one`s financial loss. It is one of the primary forms of risk management that is utilized primarily used to hedge the risks of uncertain loss. In the current economy, there is a variety of losses that investors were encountering their daily business activities. Insurance companies require one to pay an individual portfolio to ensure the property. Gold has been utilized by investors as the portfolio to protect their property against unseen disasters. The cost of loss is quite intensive especially in cases when its not under any insurance. Many insurance company has used gold as its more valuable as most estimated loss. The aspect is brought by the fact that gold is utilized in the modern economy to measure the value of other assets. The assessed value is thus paid in the form of gold to insurance companies such that in case a risk materializes the insurance company restores one's original financial position (Capie, Mills, and Wood, 2005).

Gold as a Currency

Throughout history, gold has been used as money. The aspect has been brought about by the fact that its well suited to be used as money due to its durability. All the features of gold assume those of money. The aspect of being fungible allows gold to be used as money in the current market. The stability of gold has been the primary reason as to why it is used as a means of exchange of value in the market. Most valuable assets are estimated their value regarding gold. Gold have also been used to store money. The aspect of storing a lot of cash in premises exposes one to more risks. According Capie, Mills and Wood (2005), many private investors use gold as a means of storing other forms of currency. Central banks of many states prefer storing their money in the form of gold. The portability of gold makes it useful in the current economy as not only as a currency but also as a means for storing the value of money. Gold gained its official use as a currency in the world back in the year 1971 when Richard Nixon showed the clarity in the link between US dollar and gold (Capie, Mills and Wood, 2005).. The value of gold has never lowered to zero about other currencies. The aspect has made many central banks in the economy to use gold as a means of storing the value of their currencies.

Conclusions

Gold is mined as other tangible minerals. It is hard, tangible and a real asset. However, there has been a close link between gold and the American US dollar. The aspect has caused gold to be used as a means of storing value, exchange of value as well as a form of currency. The stability of the value of gold has enabled the US dollar to maintain its balance hence acting as a standard measure of other currencies. The value of gold has also attracted its utilization in the insurance industry where the insuring companies accept estimating the value of insured property regarding color. In the modern as well as the old economy, gold has been used in the market as money.

References

Capie, F., Mills, T. C., & Wood, G. (2005). Gold as a hedge against the dollar. Journal of International Financial Markets, Institutions and Money, 15(4), 343-352.

Hashmi, A. S. K., Braun, I., Rudolph, M., & Rominger, F. (2012). The role of gold acetylides as a selectivity trigger and the importance of gem-diaurated species in the gold-catalyzed hydroarylating-aromatization of arene-diynes. Organometallics, 31(2), 644-661.