Gold Prices

The US economy exited recession in June 2009, the National Bureau of Economic Research said Monday, making it official that the downturn was the longest in more than half a century. More than eight million jobs were lost in the slump that was triggered by dodgy Wall Street mortgage investments.

Even though economists may say that the recession officially ended last year, obviously for the millions of people who are still out of work, people who have seen their home values decline, people who are struggling to pay the bills day to day, it’s still very real for them.

Unlike many countries where a recession is defined as two consecutive quarters of shrinking growth domestic product, in the United States it is determined by a seven-member NBER panel.

Today, like most commodities, the price of gold is driven by supply and demand as well as speculation. However unlike most other commodities, hoarding (saving) and disposal plays a larger role in affecting its price than its consumption. Most of the gold ever mined still exists in accessible form, such as bullion and mass-produced jewelry, with little value over its fine weight — and is thus potentially able to come back onto the gold market for the right price.

Central banks and the International Monetary Fund play an important role in the gold price. The ten year Washington Agreement on Gold (WAG), which dates from September 1999, limited gold sales by its members (Europe, United States, Japan, Australia, Bank for International Settlements and the International Monetary Fund) to less than 500 tonnes a year. European central banks, such as the Bank of England and Swiss National Bank, were key sellers of gold over this period. In 2009, this agreement was extended for a further five years, but with a smaller annual sales limit of 400 tonnes.

Although central banks do not generally announce gold purchases in advance, some, such as Russia, have expressed interest in growing their gold reserves again as of late 2005. In early 2006, China, which only holds 1.3% of its reserves in gold, announced that it was looking for ways to improve the returns on its official reserves. Some bulls hope that this signals that China might reposition more of its holdings into gold in line with other Central Banks. India has recently purchased over 200 tons of gold which has led to a surge in prices.

The price of gold is also affected by various well-documented mechanisms of artificial price suppression, arising from fractional-reserve banking and naked short selling in gold, and particularly involving the London Bullion Market Association, the United States Federal Reserve System, and the banks HSBC and JPMorgan Chase. Gold market observers have noted for many years that the price of gold tends to fall artificially at the start of New York trading.

Gerhard Schmidt from the University of Mainz, western Germany, carried out a 12-year investigation into impact sites left by meteorites, analysing the soil for traces of these precious metals, which are called highly siderophile elements (HSE). Metals in the HSE group include gold, platinum, palladium, iridium and ruthenium.

Schmidt compared these with samples from Earth’s mantle and crust; from Martian meteorites that have been found on Earth; and from analysis of HSE-rich rocks, brought back by the Apollo missions, found at impact sites on the Moon.

The startling similarities point to a “cosmochemical source” for terrestrial HSE, he said.

Schmidt was scheduled to present his work at the European Planetary Science Congress He calculates that around 160 large, metal-rich asteroids in the order of 20 kilometers in diameter would have been enough to provide the concentrations of HSE we see today.