StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Topic-Gold stocks and index performance comparison - Research Paper Example

Cite this document
Summary
Gold stocks and index performance comparison Name: Number: Course: Lecturer: Date: Gold stocks and index performance comparison Gold for ages has been the only reserve means by central banks that is universally accepted and held in place of formal country’s currency…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER92.7% of users find it useful
Topic-Gold stocks and index performance comparison
Read Text Preview

Extract of sample "Topic-Gold stocks and index performance comparison"

Download file to see previous pages

When a country’s currency devalues significantly, gold held by central banks and Federal Reserve can be used in trade as a means of exchange to facilitate trade. For governments to hedge against instability in currency, gold is deposited in reserve by governments, private individual and companies to be exchange when need arises. A country’s development is pegged on the amount of gold in its reserves and is used to determine the value of a country’s currency. With a good reserve of gold, economic stability is realized alongside stable commodity prices in a country (World Gold Council).

The United States ties its dollar on the price of gold and gold in its reserves which in turn the international community tie their currency against the value of the US Dollar. This explains the reason why the dollar is the widely accepted means of foreign exchange against all currencies in the world. Before 1971, gold was the only exchange standard. Since then, international cooperative monetary system has been used. Instead, it has remained trading in the international markets freely, with forces of demand and supply determining its mean price just like any other commodities.

Though it has been replaced by international monetary system, gold still enjoys about 13% official reserves around the world as a cornerstone reserve asset. Gold as a commodity has been trading in the international market, often fetching high prices in times of economic turmoil. When the international financial markets are in great upheaval, traders dumb the socks and other financial instruments to save the devaluation of the positions in gold reserves. For example, when the prices of stocks or other forms of securities are falling, traders resort to buying gold.

This takes to the hypothesis that, when the price of stock index is falling, the price if gold rises. Over the recent past, there has been sharp increases I the prices of gold as most of the major financial markets were faltering around the world. This is so because gold has been seen as a substitute investment instrument to the financial system. Currently the price of an ounce of gold in the international market is about $1,608. S&P 500 is one of the major indices in the United States that can be used in this study to compare its performance against that of gold.

To get the relationship in movement and to proof the hypothesis quarterly performances can be looked at with a main focus in the pre and after 2008 financial crisis. The explanation to the relationship that can be adduced is found on the graph. S&P 500, alongside other indices in the United States like Dow Jones Industrial Average (DJIA) and NASDAQ, have been observed to be inversely correlated with the price of gold over time (World Gold Council). When there is exists uncertainty in the economy and by extension the financial markets, investors tend to offload their positions in stocks and other securities to buy the save haven; gold.

Gold has been taken as the ultimate safe haven as explained earlier. When there is an imbalance between supply and demand for shares, the prices will either pick up or tumble depending on the two forces. When there exist jitters on the stability of the economy which will affect the performance of the listed companies in the securities exchange the shares will drop in their valuation. Investors buy stocks expecting to get returns either from good dividends or appreciation in the share prices, increasing the net worth of an

...Download file to see next pages Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Topic-Gold stocks and index performance comparison Research Paper”, n.d.)
Topic-Gold stocks and index performance comparison Research Paper. Retrieved from https://studentshare.org/finance-accounting/1471522-topic-gold-stocks-and-index-performance-comparison
(Topic-Gold Stocks and Index Performance Comparison Research Paper)
Topic-Gold Stocks and Index Performance Comparison Research Paper. https://studentshare.org/finance-accounting/1471522-topic-gold-stocks-and-index-performance-comparison.
“Topic-Gold Stocks and Index Performance Comparison Research Paper”, n.d. https://studentshare.org/finance-accounting/1471522-topic-gold-stocks-and-index-performance-comparison.
  • Cited: 0 times

CHECK THESE SAMPLES OF Topic-Gold stocks and index performance comparison

Assignment of Mergers & Acquisitions

1.... Discuss, and compare, (i) the CAPM, (ii) the ICAPM, and (iii) the Multifactor Model, as the different techniques in estimating the cost of equity (Ke) in the context of cross border mergers and acquisitions.... Mergers and acquisitions is a very important aspect of corporate finance which is mainly done to strengthen corporate strategies....
9 Pages (2250 words) Assignment

The Financial Analysis from 2006 to 2010 of Kellogg

Its stocks and share prices showed a very positive trend and investors were on a rush to invest in Kellogg stocks.... High sales do not measure a stock's performance, whereas the profits of a firm directly affect the stock movements.... “The most common deciding factors used in the market to attempt to anticipate future stock pricing are recent price history and patterns, current price relative to past price levels or other stocks, beliefs about future price movement, and a fourth area that can be described generally as ‘reckless optimism” (Thomsett 1)....
14 Pages (3500 words) Research Paper

Securities Analysis and Portfolio Management

Modern portfolio theory was developed largely before ETF vehicles existed to track index performance through large, distributed... 23,281 Required: (a) With relevant statistics, discuss the strengths and weaknesses of Simon's existing portfolio above (make reference to eps/dps growth; betas; price performance; and sector spread of the ten shareholdings)....
11 Pages (2750 words) Essay

Investment opportunities and risks in stock markets: A comparison between emerging and developed economies

The researcher of this descriptive dissertation mostly focuses on the discussion of the topic of investment opportunities and risks in stock markets and makes a profound and analytical comparison between emerging and developed economies.... The comparison of Investment Risks in Emerging and Developed Economies 50 6.... Purchasing Managers' index p53 Chapter 1 Introduction 1....
61 Pages (15250 words) Dissertation

The Complex World of Capital Markets and Market Theory

This logic that consistently beating the market is not possible led to the creation of index funds that mimic the market's performance.... Robert Shiller, a Yale economist, has long argued efficient-market theorists made one huge mistake: 'Just because markets are unpredictable doesn't mean they are efficient....
14 Pages (3500 words) Essay

Relation between the Stock Market, Currency Market and Property Market

Trading in stocks during that period was much higher in Amsterdam and Paris and oldest share issue in history is the issue of was in 1606 in Amsterdam by the company Camere Amsterdam and it was called Dutch Vereinigte Oostindische Compaignie (VOC) share certificate.... The French Revolution caused the economy in France to collapse and as a result, trading in stocks increased on volume in England The London Stock Exchange was officially started in 1772 with the purpose of a properly organized structure to control the growing number of companies and the volume of trade in securities....
29 Pages (7250 words) Coursework

Financial alliance boots

The FTSE 100 index shows “the 100 most highly capitalized companies listed on the London Stock Exchange,” (Forbes.... The index is viewed as a barometer of success of the British economy (Guardian Unlimited, 2007) and it not actually a stock exchange.... Against therefore the standard which holds the company belonging to the index, how Alliance Boots does perform in delivering value to stockholders....
14 Pages (3500 words) Essay

Efficient Market Hypothesis

When the market bubble exploded, internet associated stocks lost almost 90% of their value.... It has been suggested by the critics that “Efficient Market Hypothesis” (Abreu and Brunnermeier, 2003) was accountable for the financial crisis.... EMH declares that… is not possible to hit the market due to the reason that the efficiency of stock market causes existing stock prices to incorporate as well as reflect all the pertinent information (Malkiel, 2005)....
12 Pages (3000 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us