Gold’s highest demand is that of the jewellery sector,
jewellery is the largest annual source of demand for gold. Gold demand from the
jewellery has been in decline over the last couple of decades since it is not
as fashionable as before to wear gold accessories. Although demand has
decreased jewellery still makes up around 50% of the total demand for gold. The
largest gold markets are China and India mainly due to the volume of gold they
have these two countries are responsible for more than 50% of the global gold
demand. The middle eastern market more prominently Dubai and Saudi Arabia focus
more on gold that has a higher carat.
Central Bank demand
In recent years there has been a change in the way that
central banks viewed gold, the major reason for this change was the financial
crisis of 2008. Emerging central banks are increasing their purchase of gold
and European Central banks have halted the sale of gold from their vaults. This
sector has risen to be one of the most important source of gold demand per
Classical Gold Standard-
the gold standard is when the money supply of the country is directly linked to
gold. The decades before the start of world war one international trade was
done by using the gold standard. This meant that trade was done by using solid gold.
This was a simple trade system, if a country had a trade surplus it would have
more gold in its possession if there was a trade deficit there would be a
decrease in the gold reserves. The gold standard was deemed not to be flexible
to base a global economy on, it was during the Great War that the gold standard
was stagnant due to the lack of trade since countries did not want to lose gold
from their reserves and so near the end of the second world war in 1944 the
Bretton Woods system was adopted.
The Bretton Woods
system- With the introduction of this system the world bank and the
international monetary fund were set up.
This system demanded that countries under this agreement needed to maintain
fixed exchange rates between the dollars and their currency. Maintaining a
fixed rate was simple, if the value of a country’s currency became weak in relation
to the dollar the bank would need to decrease the supply and this was done by spending
a lot of its currency in foreign exchange markets. On the contrary if the
currency was higher than the dollar it needed to increase its supply by printing
more money and in turn this would lower its price. This system only lasted for
20 years since President Nixon ended this system in 1973.