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Gold has been controlling the economy of many nations and has been present in our society as a valuable metal. The presence of gold in history has been reflected in all civilizations. The first gold coins were introduced in 800 B.C., and since then it has become an important part of treasures of the Kings for the era. Even today, the governments fall back to gold during inflation to stabilize their economy. Here are five reasons why you should be investing in gold.
ValueGold is way apart in its value compared to paper currencies. One major difference is that gold has always maintained its value through the years, unlike the unstable paper currencies. Because of its stability, people have been converting their money to gold to preserve it for their future generations. Gold has a comparatively low melting point and has a unique color than other elements. It can be converted into jewelry and coins easily.
Inflation HedgeGold has been a savior of the governments during the time of inflation, the reason behind being its price, which tends to rise along with the cost of living. Gold has been accepted by the governments as a good store of value, and people are encouraged to buy gold when the paper currency starts to lose value. Gold tends to be priced higher because when a currency dies, the government used gold to estimate the value of things, and hence, its own value rises.
Protection from DeflationWhen the prices for the products starts declining, and the economy goes under excessive debt like when it happened in the 1930s, the value of gold has been surprisingly found to be increasing while other materials see a decline in their values. Maybe, because of its attractive color and distinctive properties which were helpful to figure out the theory of relativity, people tend to fall for this element more than anything else.
Geopolitical UncertaintyGold is capable of retaining its value during geopolitical uncertainty. Due to the changes in geographical division of nations through the centuries. People move to the other countries during the crisis, and in this time, gold can be one of the beneficial commodities to take along as its value is stabilized. During the crisis faced by the European Union, gold experienced major price increment. The price of gold tends to increase in any government crisis.
Increasing demandThe demand for gold has been reported to increase in the past years due to the emergence of market economies. India has been a giant in the trade and consumption of gold. It has been famous for its gold jewelry and often boasts the use of gold during special occasions. Investors have also started showing more interest in gold trade. Gold also helps precious by many governments for the time they will have to deal with any crisis of any sort.
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The economy of a country can depend on several factors, and the collapse in any one of its segment can result in the downfall of the economy of a government. Economic collapse can occur due to national or regional economic breakdown because of the instability of the economy for a long time. During this time, the country suffers social unrest, bankruptcies, trade loss, currency violation, and social chaos due to unavailability of resources. The government should identify the major causes of economic breakdown and work towards improving the solutions for such causes at a constant rate. Here are some of the reasons which cause a drop in the economy.
UnemploymentHigher rates of unemployment in a country can become a major issue for the collapse in the economy. Unemployment occurs because the industries experience a huge loss due to less demand for the products and don’t require more workers. Due to fewer workers, the factories face incompetence in manufacturing their products, and the cycle continues. This might seem like a small issue but can affect the economy if the cycle continues for a long time, and it will be hard for the economy to recover back.
High Oil PricesThe oil industry is the most demanded industry in the world as oil is essential for the production processes for most of the products available in the market. If the oil prices rise at faster rates than the economic rise, it will only lead to more decline in the economy. The oil prices and economy should go hand in hand. High oil prices can cause inflation and lead to higher rates of unemployment, leading to economic decline.
HyperinflationSeveral factors result in hyperinflation. It occurs when the government allows the inflationary pressure to rise to print more money until they are unable to control it anymore. As the printing of currency goes out of control, the prices of products in the market will increase. As the prices for the commodities and service rise, and later, the government fails to maintain a balance between the capital and trades, hyperinflation occurs, which then forces the government to take debt from other countries. This is one of the major reasons which result in the downfall of the economy and is hard to gain back control over it.
Stock Market CrashWhen the investors face a tremendous loss in their invested market, they lose confidence in putting more money into the stocks. This results to a dramatic decline in the stock prices and overall brings down the value of the industries. The stock market crashed occur due to a prolonged increase in the stock values which makes it difficult for the market to find more investors as they don’t want to risk their money on such stocks at minimum profits.
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The economy and development of a nation is measured through the Gross Domestic Product. It is the measurement of the total value of financial productivity in a country irrespective of the sources of production. All the home industries and the cross border industries which are setup inside a country contributes to the GDP of the nation. The factors that are involved in the tracking of a nation’s GDP are consumption, investment, trade with other nations, and the overall international market. The GDP represents the total dollar value for all the goods and services produced over a specific period and gets compared to its previous quarters. A nation with good GDP attracts more companies and generates more profit in the stock market. Let us take a look at the factors which affect the GDP of a nation.
Leisure PreferenceWe have advanced through the ages to build machines and systems for the industries that productivity has reached new heights and requires minimum efforts. The ease in the workload has given confidence to workers to explore out more ways to reduce the workload. This has given the workers the chance to find more time for themselves to get involved in leisure activites. However, the time spent on such activities rather on work does not reflect in a nation’s GDP. The GDP of the nation only measures the production, and the more time spent on doing other things will automatically bring a significant change in the GDP of a nation.
Non- Market ActivitiesThe unpaid and volunteered service does not count in the GDP of a nation. All the unofficial activities performed by the industries and government such as NGOs, nursing, free education does not contribute to GDP in any way even though it consumed the resources of the nation. Also, the workers like plumber, private drivers, house cleaners, etc. do not count in the tracking of GDP unless they are performing under a legal organization. These factors however do not damage the economic record for the country, but they are not even getting noticed under the GDP for a country which affects the tracking tremendously.
Underground EconomyMany activities inside a nation take place unofficially. The legal and illegal activities are both involved in raising the underground economy. Organized crimes such as dealing of illegal products, illegal occupation of lands in remote areas, child care and NGOs contribute to the underground economy of a nation, and it does not get recorded in the GDP of the nation.
Poverty and Economic InequalityThe economic stability of a nation is dependent on the per capita income. As the per capita rises the cost of living also increases, making it difficult for lower class people to deal with their expenses. This results in the increase of people in below poverty line. The inequality in income has been increasing in most developing nations. But GDP measures only the production of goods and not its consumption. So the GDP can be inaccurate in depicting the growth of a nation as two nations can have the same production rates but can differ by a huge margin on the equal consumption of those resources.
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Inflation and Deflation are both components related to the downfall of the nation’s economy. Inflation occurs due to the rise in the prices of services and goods, whereas deflation occurs due to the decline in the prices of services and goods. It is difficult to maintain a proper balance in both, and the extreme of any one of these can lead to economic issues. Deflation and inflation can be experienced in different sectors of the economy of the nation, and the government keeps refreshing the rates of the products in the market to balance the two sides. Let us find out the factors which contribute to the inflation and deflation of an economy.
Deflation can occur when the resources are produced more than the demand, and as there are no consumers to the goods and services, the prices drop significantly. When the industries become famous for their ideas, other companies start buying the patent to create their own products. This results in an unlimited supply of products. Overstacking of the inventory forces the companies to drop their prices, which leads to deflation. When the prices are lowered, people get encouraged to apply for loans, but the providers tend to refuse such loans due to high demand, which adds up to more deflation. Prolonged deflation in any sectore of the industry can result in affecting the economy of a nation and increased unemployment. It is more dangerous than inflation.