The Golden Thread Through History
Kotak Insights | Date 20/07/2024
Did you know that all the gold ever mined in the history of humankind could fit into a single, massive cube with sides just 22 meters on each side? Imagine fitting all that gold into a single cricket stadium – that's right, this precious metal may seem abundant in jewellery stores and bank vaults, but in reality, it's rarer than a unicorn sighting.
Gold: The Religion of Wealth
Gold is like a religion for many – a timeless belief passed down through generations. And for those who have trusted in this precious metal, their faith is paying off as gold prices keep rising. The price of gold has grown from around Rs 184 per 10 grams in the early 1970s to an astonishing Rs 73,110 today!
A Timeless Journey
Gold's journey stretches back millennia. From the glittering treasures of ancient empires to the world of modern financial markets, gold has evolved and adapted to the changing currents of history. Fun fact: Around 212,582 tonnes of gold have been mined throughout history. That’s a lot of gold, but when you think about it, it’s still a limited resource.
The 1970s: Breaking Free from the Gold Standard
Gold is more than just a shiny metal. If we take a step back and look at the bigger picture, we can see that the price of gold has been on a wild ride, generally going up but with some pretty dramatic ups and downs along the way.
Let's rewind to the early 1970s. This was huge for the global economy because the Bretton Woods system collapsed, and we abandoned the gold standard. Suddenly, we had floating exchange rates. This shift rocked financial markets, and investors flocked to gold as a safe haven. In India, the price of 10 grams of 24-karat gold was around Rs. 184 in 1971. But by 1979, it had shot up to approximately Rs. 937.
The Iranian Revolution and Beyond
What caused this surge? The Iranian Revolution in 1979 disrupted the oil market and sparked fears of inflation and economic instability. Investors, seeking refuge from the turmoil, drove gold prices to new heights. It's clear that geopolitical events can have a profound impact on gold prices, often seen as a hedge against political and economic uncertainty.
Black Monday and the 1990s: A Rollercoaster Ride
Fast forward to 1987 and Black Monday. Stock markets worldwide were shaken, but gold held steady, climbing to around Rs. 3,200 per 10 grams by year's end. Then came the 1990s and early 2000s when central banks began selling off their gold reserves, which pushed prices down. But the 2008 subprime mortgage crisis turned things around. As financial markets crumbled and economies teetered on the edge, gold once again became the go-to safe haven. By the end of 2008, the price of 10 grams of gold had skyrocketed to over Rs. 13,000.
The European Debt Crisis and New Heights
In 2011, the European sovereign debt crisis hit. Demand for gold surged, driving prices to over Rs 29,000 per 10 grams. This crisis highlighted gold's role as a store of value during economic uncertainty, with investors looking for safety amidst the chaos in the Eurozone.
The COVID-19 Pandemic: A Modern Surge
Then came 2020 and the COVID-19 pandemic. As economies shut down and markets plunged, gold once again proved its worth as a safe haven asset. Prices soared to over Rs 50,000 per 10 grams for the first time in history. This spike was driven by fears of inflation, currency devaluation, and economic uncertainty.
The Road Ahead: What Drives Gold Prices Today?
But it's not just crises that drive gold prices. Increased demand from emerging markets like India, central bank purchases, and speculation about potential interest rate cuts all play a role. And today, gold stands at a staggering Rs 73,110!
So, where will it go from here? Who knows? But one thing's for sure – gold will continue to be a fascinating and valuable part of our financial landscape.
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Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their own research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.
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