Intarnational Gold Price Movements, 1972-1982 I .S. Gulati nnd dshoka Hody

7/29/2019 Intarnational Gold Price Movements, 1972-1982 I .S. Gulati nnd dshoka Hody

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Working Papor No. 150Intarnational Gold Price Novemcntn, 1972-1982

I .S. Gulati nnd dshoka Hody

Centre for Development StudiesUlloor, Trivnndnun 695 011

Qctober 1982


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TIJTZRNATIONAL GOLD PRICE MOK3IEMENY!S 1972 - 1982D ur in g t h e l a s t d ec ad e, has shown proneness

t o la rg e 2nd rap id has changed a tp e r t i c u l a r l y s p e c t a c u l a r s pe ed s i d t he l a t t e r h a l f o f t h e

Idecndo . T l ~ o o l l a r p r i c o of gold''ncrunood moro t han o ich ti-ti me s from a low of a bout 5 100 an' ounce i n t h e summer ofI1976 t o a high of 8 850 i n Januar? 1980. I n the fo l lowingeight een months ending i n June 198$, th e ,p r ic e decl i ned t o

I

l c sa than $ 700 an ounco, i . 0 . . to almost one-third of thopeak re ac hed i n J an ua ry 1980. ~ e c b n t l ~ ,etween J u l y and .September 1982, gold pr ic e undenie a mini -cycle , f i r s tr i s i n g from 8 300 t o 8 500 an and t h e n d e c l i n i n g t oS 400.

I t x i i l l be re ca l l ed t h a t pe$cen I934 and 1968 @l dp r i c e was mzinta ined a t S 9 b y t h e e f f o r t s ofn a t i o c a l m on eta ry a t t e m p t s a t con-t r o l l i n g t he abandoned

an ounce ; on the p r iv a t e market . g , d p r i c e w a s l e f t t o f i n ditt s own le ve l. I n August 1971, thg two-tie r system w a s a l s oIabnndcn~d . The U n it ed S t a t e s r o f d e d t o c on v e rt oven o f f i--1c i a 1 h o ld in g s o f d o l l a r i n t o g ol d a t 3 35 an ounce. TheI .

o f f i c i a l go ld p r i ce ceased to ex i s4 ( excep t fo r some aocount-in g purposes) , and though na t i on al monetary au th or i t ie s have


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cc nti nue d t o buy and se;- gold, no attemp:has been madeby t h en t o k eep t h e f r ee mark I r pr ic s of gold wi t hin wel l-d e f i n ed i i m i t s .

I n t h i s paper; gold price movements den^the decade 1972 - 1982, per iod a f t e r th e abandoningo f t h e t w o -t i e r p r i c e 1971. The decade,w o havo : lndicntod, i n gold price,The f lu c t ua t io ns p r i ce t racedo u t two pr in ci pl e cy cl es th e decade. Moving up from.1971, i t reached a peak be r 1974, t he n f e l l till theth i r d r iunr tcr of 1976, e ar ly 1980, a f t e rwhich i t f e l l up to we s h a l l be concernedpr i iuazi ly wi th t he se two cyc les , we shall a l so in d i ca te haw

Ith e rec en t mini-cycl e between June and September 1982 couldbe explained i n terms of o ur d a l y s i s of tb e decade immediatc-l y p re ce di ng .

Se ve ra l developments i n bo rl d economy could have in-Iflu en ce d movements i n gold pri ce . Our stu dy , however, has

l c d t o c on cl ud e t h a t t h e g ol d p r i c e c y c l e s i n t h e l as tdecade +rere generated p r i nc ip a l l y by spe cu lat ive behaviour .

I

The spe cu l a t i ve behav iour , i n tq rn , was inf luenced by cyc l i ca lfo rc es i n th e wor ld economic sydten .

IXowever, as rue s h a l l notel an e a r l i 6 r s t u d y , co ve ri ng. . i ' . ~3 much more extended perio d, ind,cates th a t gold pr ic e has,1 1 t , o - t qui te responded t o cyclical economic forces.During the decade under review, e r t a i n s p e c i a l f e a tu r e s of9i n t e r n a t i o n a l economic d ev el op medt s, d i r e c t l y o r i n d i r ec t l y ,seem t o have had an impact on goljd price.


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The paper i s , thoreforo, organisod as f o ll o ws : I ns e c t i o n I , we high l ig ht th e ndj or changes i n the world cco-nony dur ing t h ~a s t decade. Section 2 a t tempts an andysieof the present in t er na t i on al gold markct and assesses t h er e l a t i v e im po rt an ce o f t h e v a r io u s m ajor s u p p ly and demandIIf a c t o r s . S e c t i o n 3 concentra tps on pr iv a t e invostmcntIda l ~ i ~ i n t lor gold ao d i o t i n c t rrLIn .tho domnncl f o r jowollcry,

. .' d e n t i s t r y and i n d u s t r i a l ~ u r ~ c ' : : e s . t i s i n this s e c t i o n. ,th a t wc d i s cuss th e r o l e o f sp, !?cu la tion . The th re e sec t ions

which fo l low analyso the impac of fa c t or s poss i b ly inf l u-I ,cnciric bpcculnti on i n gold. T t o f , a cto r s w o d i s c u s s a r ei ) inflationary'expoctations, i i ) oxchosge r a t e f l u c t u a t i o nsIIand i i i ) i n t e r e s t ra t es changes. Gold pr ic e movements bet-Iween July and Soptenber 1982 a i e nna lysed i n Scc t ion 7. Thepr pc r ends wit h soma concludin4 /obs cmaf ions .

S e c t i o n 1: The in t e rn a ti o n al ' e h ~ r o m e n tThe foll owin g fe at ur es world economy during

t h e d e c d c , 1972 - 1982, are1 ) There was dlmost st ca d decc ler nti on i n world pm-d u c t i o n and t r ad e . ( ~ e c ) This was a c c o n p d e d byincreasing unernploymcnt rate$. 1 n . the OTCD c o u n t r i e s un-employment r a t e doubled from5.3 per cen t i n th e secondc t e d t o i n c r o a so t o 8 poralsi n p r od uc ti on ~ . s ~ a c c o n ~ a n i . e d? r i s i n g i,nfl.ation. TheI '

Invcragc i n f l a t i o n r a t e increased t o 6-40. e r ce n t i n 1970sfrom 3-4 p c r c e nt i n t h e 1960s.


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2) There was a t the s m e t i m , a la rg e growth of the finan-c i c l supers tructu re . To ta l o u t i b d i n g in t e rna t iona l b& claimgrew ct 25 per cent per onnuxr: 5 gross te rms in temat iond b dI I ?-.ts. increased from about 8 ! l g+ S l l i o n on 1970 to more

I I /than S 1500 b i l l i o n i n ea r ly 1 j 8 f j a d i n no t terms ( i.c.,I in s t of i n t c r bank tr an sa ct io ns )' ??om about 8 100 t o about

8 I000 b i l l i o n over the same p ~ ~ ~ d ~ "3 ) w a s accompcnied by::rc:~tor f innnci nl i n voln t i lei n t e r e s t r a t es and exchmge. from a

z h a g e r a te s , p a r t i a l l y i n 1971 1The v o l c t d i t y of exchange ra tes ;par t ly re f lec ted f in nn ci ds :>cculation. I t rl so 'refl-.cted varied nation al growth p e Sforccnces and policies. Moreoveisthe higher in fl at io n rates i nthc 1970s were acconpmied by gre ate r v o l a t d i t y i n nationalin fl c ti o n rat es as well as zreate 'r divergences betweenna t iona l in f l a t io n rat e s.4) OPEC, tho c a r t e l formed by the mnjor pctroloum pro-duccrs, cff ect ive ly demonstrated i n 1973-74 a d i n 1979-80 i t sa b i l i t y t s enfo rce su bs te ii ti ol d i b c r ot e i nc re ases i n t h cnozinc1 price of i t s pctkoleum expo rt s and:'thcreby achicvecon siderable improvement i n i t s t bms o f t r sdc .

S e c t i o n 2 : The g o l d marlcetI t has been estim ated th at' the cumulative aggregate

o f ~ a l d ver ninad would i~robnblybe i n the range of 90,000


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t s 116,000 to ns . Of this oggr6gaqej lrnore then 60,000 to nsa r e p os si bl y a v a i l a b le to da y i n t $ e l f q n of o f f i c i a l andpr iv a te holdi ngs of bullion,, gold jewellery, Approxi-mately ha lf of t h e av ai la bl e stock,j$.e. about 30,000 tons,

, .i s h d d i n Lhe fo rn of roso rvcs by kh ti on it monotary autho-r i t i o s .A/

Tbe annu al new sup ply of gol'd i n t h e 1970 ha s been-. '

i l l tllc mngo of 1300 t o 1GOO tons. Thc new' sup ply , thorn-..fore , fo rms l e s s than 3 per ce n t o fi ex i s t i ng aggregate s tockand about G per cent . of n o n e t k y doc k. The Russians produce

Iaround 300 t on s nnd t h e . Chinese about 50 tons every year.':he r e s t of t h e now sup pl y comes from th e non-communist coun-t r i e s . I n r c c e nt y en rs , S ou th ~ f r i c cns been producing650-700 ton s , which i s about 70 pe r ce nt of non-comm dst2roduc ti nn. Agge g.=t c noii-connuni t. roduction has howeveritended t o dec l in e over the 1970s, r im ar i ly on account of,-. c on ti nu ou s f i l l i n s o u t h A f ri cc n~ pr od uc t$ ol r r p m 97s tonsin .19 71 t o 650 tons i n 1981.Li/

O u r d i scuss ion below re l a t e on ly t o tho non-communi~t

1old narlret . The t0 t .d annual sup l g of go ld i n th e non-I .c o sa u ni s t c o u n t ri e s f o r o f f i b i a l a h on-off icial uses i sobtained rn t h e sun o:F c u r re n t pr oguc ti on i n t he non-commu-n i s t count r ies and th e n et expo rts/ of the communist countr ies.This aggregate, when .adjusted fo& b t f ic ia l t r ms ac t i on s ,g ives the mn ua l go ld supply fo r p t+vate purposes .


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o n tho demand side, j d el lo ry denand, though f luc tua-I 1t i n g , h as c o n s ti t u t e d most pf t h e ~ r i v i t eemand. I n f i veof the 11 years between 1971 / @d 1981~>~'-5;bF3~:yemand was

!a r o u n d 1000 to ns , which workid. out t o 80 per cent or moreof t he a va il ab le supply fo r bxkvate uses. The demand forjowc l le ry , howover, f e l l t o &I l ow as 120 tons i n 1980,

I Iwhich was 15 p e r ce nt of av ai la bl e supply. Between 200 ~d250 t ons have each year been taken up by de nt is t r y and in-d u s t r i a l ' u s es . The r e s t h a s gone i n to co in s m d b u l l i o nhold ings . The l a s t cate gory of demand, i .e. , tho dmr~ l d 'f o r b u l l i o n , i s d e r i v e d a s a r e s i d u a l .

Fo r t h e Fur po se s o f o y r a n a ly s i s we r e f e r t o t h edemand fo r j ewc l le ry , de n t i s j r y and in du s t r i a l pu rposes mco ns t i tu t i ng t he cu r r en t con$umption dcnmd f o r go ld , andt h o demand f o r c o in s x d o u ld ion a s c o n s t i t u t i n g t h e in v es t -ment demand f o r gold.

I n t h e c h a r t s t h a t f o l' lo w g old p r i c e h a s b ee n p lo t t e dag ai ns t gold s q p l y and demand components.H er e, a s i n f u r t h e r ( expressed i n USd o l l a r s ) has been p r ic e indexof manufa ctured on US d o l l a rn ) i r , ordo? t oi s o l a t e f a c t o r s from i n f l u -ences on gold pr ice changes i n t h e USd o l l a r oxchange r a t e o r t r e nd s . The


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nanufac tured exgor t s p&ce in dek(has Geen used as an i n d e xof general : i n f l a t i o na ry t r en ds j;b 't h e =dc:cste+cXn,- t a a tp r i cmin t he manufac tu re s cec to : [ se t the p ace t o p r i c e s i n' o t h e r s ec tor s .

From chart 1 j. t mny bo 5ben that cycl ical rnovc~nontsi n gold p r i ce can be exp l ained neithe;. by vur i a t i on s i n aggre-

Iga t e supp ly fo r o f f i c i a l and non-of f i c in l purposes , nor byIt h o v a i a t i o n s i n t he su pp ly on ly to t h e l a t t e r . The currentc o n : ~ r v ~ l ~ - i o nrmancl , L .o . t ho d C ~ nn *i o r J o r o l lo r y , d o n t i ~ t r yand i n d u s t r i a l a s e s , i s a ls o unpblo t o e x p l ai n g ~ l d r i c e611an&cn. ( s e e c h ar t z . ) , Indeed , t h e re appears t o be an. . . . .i n v e r s e r e l a t i o n s h i p b etw een c o n s y p t i o n d em a n d and r e d lg o ld p r i c e , w hic h i n d i c a t e s t h n$ g o12 p r i c e i n f l u e n c e s t h i sdemmd r a t he r t l ~ n 5ce versa .

Thd demead f o r b ul l i on alon e, urhich: .as in di ca te d above.. I

i s dor ived a s n res idu i l . , seensJ ; to fol low ths curve of the1..ro?-1 gold pr ice reasonably wel i j . Moreover, if t h i s demmdi s e q r e s s e d as a p ro po rt io n of t h e supp ly t o th e non-commu-n i s t p r i v a t e s e c t o r , t h e r e a pp eg rs o vary c lose correspondence. .'bctwccn t h e d ir e c ti o n of th e yekr-to-year movements 6 $ goldp r i c e end t h e demznd f b r bu l l i op . , ( s e e ' cha r t ' 3 .)

, .I f t o bu l l io n demand we d t h e demand fo r o f f i c i a lfi

ZLL I E J i:o rupro : ,~n . t tho ngcrogatd ( l i w o o tmo n t clommd f o r g o l d ,rSrc f i n& th a t t he go ld p r i c e almost completely i n sym-p e th y w i t h t h e i n v e s t i e n t ( s e e c h a r t 4.) I t , there-fo r* appears t h a t gold p r ic e dlu*i!ng th e l a s t decade has been


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determined pr im ar il y by changes i n investmen t demand.

S cc t i o n 3: Inve stme nt demand f o r ao idOften inves tment dem4d i s t h o u g h t t o co n s i s t o f two

components: a specu la t iv o demand ( i n expec th t ion of a (rela-t i v c ) p ri c e r i s e m d honce a c a p it o l gain) and hedging dcmand( a l s o i n e x pe e te t i o n of a ( r l a t i v e ) p r i c e r i s e b u t more w it ha view t o preven t ing a l o s s t h e r ea l x v a l u e o f a s s e t s ( p ar -t i . cu l n r l y cu r r cn c i e s ) h c l d ) . Fo ll ow in g Machlup, however, Wcr cg a r d dl of inve stme nt den&d fo r gold as s p e c u l a ti v e i n

1n a t u r e r eg a r d l e s s o f w he th er t i s i n a n t i c i p a t i o n o f p r i cebr i s e of g ol d o r t b i n s u r e ag e xp ec te d l o s s i n t h c v a l ue. .of o th er as s e t s . According "... ny purchaseo f gold i n i n i t s p r i c e s h a l l be

buy ers of gold , seek-do not regard them-

a n a l y s i s i t makesno difference w h e t he r a e r w a n t s t o avoid l o s s fromthc d e p r e c i a t i o n of h e s e ek s c a p i t a l g a i nfrom tho 1969, pp 333 nnd

F a c t o r s a f f e c t i n g s p ec u la ti o n:W L ) 1 1 4 ~ 0 ill:l.[: IIuu11 &~!.d/ ll!i00 111 t11tI lL1Uk ~ U U ~ L ~ O1U

been determined m ai nl y by in ve tmont demand f o r go ld which,'Ias w e have noted, i s a i t o g e t b b f s p ecu l a t i v e i n na ture . hatt h e n r a i s e s t h e f u r t h e r q u es ti on : what a r e t h e f a c t o r s in-


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f luc ncin g spe cula t ive demand fo a gold? I n the cu rrent in-ternational economic environmen ; gold pribe nay be expected

, , , . . .o. i s k when: a) inf la t icn ary & pectations are generated, ,on acco&t df r a p i d ly and bf.&change -ratesf luc tua t e r ap idly . c rea t es an expectationOP b01;reciation i n Tho socond re-% .fl.ecto &cortrrinty ourronciosx e l l as general ~nvironment.Higher flwitua-.-tion3 may, therefore, be oxpcct . t o o s d t ' i n somo movcrnont

,;,out of currencies..Such moveme out would, i n . par t , create! 4 ; JYrgre iter investm ent. demand f o r ,gg id, rois ik the gold 'price.

On th e o th e r hand, ' since1 is a non-interest bear-i n g a s se t , l a r g e i n c r eases ' i n i~ e r e s t r at 'e s may be expecth 't i iscoura gi holding o f gdlk/' \iyFnhe exp ic t a~ iom3 i t irespect t o the apprec iat ion i n o: pr i ce o f gold.

I n th e following nectiongL r e , the refo re, diScusQ th einfluence on gold price expobtations, un-. , . . .c e r t a i n t y i n the ax@ i n t e r o a t r a t e sc!-,ages: I n discus sing changes) i n in te re st ra te s, we also

1 . .! .got some clues t o understanding/ the cy cl ic al behaviour b fgold price.

How do t h e ra te of inflalt ion nnrl t he in f ln t ionarycsp cc+ tion s. r e a c t on the inve$ment denand f o r gold? This

. .. :, . ( . .I s -h e quest i sn t o irhich t h i s dect ion is - addressed, .A B S & ~


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t h a t i n f l a t i o n a r y on th e r a t e of p r i c. .inc rea se i n th e previous pet roleum

p r i c e i n c r e a se s s i n c e th e se ha vc s i g n i f i c a n t l y c o n t r i b ~ t e dit o i n f l a t i ona ry expec t a t io s i n t h e l as t decade and thenl o o k i n to t he o v c r d l i nf l ,1 o n r n t c s , a s reflected i n thoIiovements of th e pr ic e indq of mmufacturod exports.

IIPetroleum price

.. I n c ha r t 5, r e a l has beon plot tod agninstt he r a t e o f i nc rea se of p r i ce i n t he p revious

I Iyear . I t w i l l be noted of years gold pri ceand th e r a t e of petroleum pric emove i n th e same correspondence is

, .n o t complete. from c h a r t 6which has been than annual)observat ions. "explain"th e accen tuat ion of ; the uptbend i n gold price . They do not ,1 : .however, "ex pla in" th emt of th e uptrend. Thi s i s S O parti-1 :cu la r l y fo r the upward phase of the second cycle s ta r t in g

Atowards the end of 1976. Petroleum p r i c e rcmnined s toadyn

i n nominal t e rms and Pec linbd i n r e d t erms as gold pricebegan t o move up.Qonprnl in f l a t io n- I n c hn rt 7, r e d l g o l a p r i c e i s ~ l o t t e d ' ga ins t t her a t e of i n f l a t i o n ( r a t e of owth of th e export p r i cc indexof sanaf nctur ed goods) i n previous year. The r a t e of


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i n f l z t io n i n the p rev ious .year Dhow3 a c l o s e r e l a t i o n s h i pi n d i r ec t io nal movements with t he r a a l gold pri'ce. I& p a t i -c ul ar , t he two curves t r ac e out the s ,~ mc'c ~cl 'c s . , owever,t h e r e l a t i o n s h i p f a i l s to hold in . 1979-80;. The lar go r i s ei n 1979-80, ?re f ind , was r e l a t e& no t t o thc genera l i n f l a t io nrc1.L~but t o in f l a t io nar y oxpcc t~~/ tionn~.ood on th o ohnrp r i s oi n pa rt ic ul ar commodities .of c~ $!t ic al nport 'ance, such aspetroleum (which was dis cu ss e$ jabovo) and food (#ee ch ar t 8 ) .

The im pl ic at io ns of t h e /o,bscrved ro ln ti on sh ip betwoengenera l i n f l a t io n and gold p r i c e ~ h o u l d c noted. I n an iy -f l a t ion ary pe r iod , t he r e a l gold pri ce has tended to incrcase.But t he r e d gold p r i c e i s thD bbminal gold price deflatedby t he pr ic e index of manufactubbd e xi or ts , which i s a l s othe ind cx wo hava uscd to nc a ne c genoral i n f l a t io n . Thuai n an in f l a t i onar y per iod, che ln ~m in d o ld p r i co has tendedt o inc rea se f m t u r than general r ln f la t ion , i .e. th e purchas-in,r powcr of gold h s ncreased.Ear l i e r exuer i ence

I t i s worth noting at th'is po in t t ha t t ho u p w d movc-mont of r c d gold pr ic e during a poriod of boom i n price s i s ,h i s t o r i c a l l y s pe ak ing , n new de,vclopment. Ja st ra m, who hmst ud ie d t hc h i s to ry of gold pri,c e Setwecn 1560 and 1976, ha scnnrl~ ir lor l:

"To repea t, t h e evidence i s convincing ...when in fl at io n s e t in , th e purchasing powerof gold declines" 172).


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". old i s n ot a s a t i s f a c t o r y hedg engains t i n f l a t i o n ( b u t d o es v e r y w o lli n pe r io d o f d c f l a t i h n ) . ."( p . 178).

p r i c oAccording t o J a s t r a , goldfhask i n gene ra l, no t matched t h ec y c l i c a l sw in gs i n p ri ce s. ~ v b i h g h e upward phase of a> r i c e c y cl e , g ol d h a s l o s t i t s pu rch asin g power. During th eriufln't ionnry ph:.~zc,gold has cont inuod i t s o t o a d y r i s o md

i h oc a i~ g l lt p, s o t o s a y , w i t q g e n g r a l p r i c e l e v e l , t h us m&n-t a i n i n g i t s pur chasin g po*er ov er a c y c l e a nd i n t h e lo n grun. However, Jn s t ra n himse l f not es a devia t ion f rom thisb&-zviour i n t h e f i r s t h a l f o f t h e 19 70 s ( ~ a s t r a ,976,p. 1721, when go ld i nc re sed i t* purchasing power in. an in-f i?.$ion,?.ry phcse. Our f indi rgw , covoring the whole decadeof .the 1 9 7 0 ~ ~how tha t ~3 p q t t e r n of th e f i r s t hdLf of a esev en t i e s ha s con tinued i n to t he second ha l f .

The r e l a t i v e l y new phdnoacnon of redl g o l d p r i c e ris-ing i n a perio d of cy cl ic al upswing i s due probably t o t hegrowth o f t h e f i n a n c i a l s u pe r st ll u ct u re ( r e f e r r e d t o i n t h of i r s t s e c t i o n above ). P lo reover , i t c m o t b e overlook ed thati n f l a t i o n i n t he s e ve n ti es h s cb -ex isted w i th d e ce le ra ti oni n pr od nc ti ve a c t i v i t y , n phhonobbnon ofton roforrod t o nss t s g f l a t i o n . Co u l d i t b e t h a t s p e c u l a t i v e i nv es tm en t i n g oldof fe r s h ighe r expec t ed- e tu r ns ich,ul p roduc t ive ' a c t i v i t y insuch c i rcuns t aoces?


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S e c t i o n 5: Exchange .r at e behaviourAfter the Second Worlp War, t he US dollar emerged as

th e nos t important in terna t i !ondl currency. The dollar's domi-nznt pos i t ion ,?rose pr in c i pr l l y f rom the s t reng th of t he UScconomy: i t 3 la r go 3hnre i n world product ion a d r a d o , i t ore l l -dev e loped f ina nc ia l markets nnd i t s s t a b l e p r i c e l ev el .Also , the f ixed exchange r c t e sys tem tha t w n s hamered outa t B ret ton Woods accorded t o t he US d o l l a r t h e r o l e of t h eorio rnd only ro:lorve currency.

In , th e 19508, do l la r s aecessa ry fo r . f ina nc i % . fo rldt rad e lrnd fo r bu i ld ing up iq tb rn a t io nd re se rves were i nsh or t supply. However, with $he ITS oxporting a l a r g e m o u nto f long term c ap i tn l nnd lnt bk running lar ge cur rpnt accountd e f i c i t s i n a d d i t io p , d ol l hr i b di an ce s o u t s id e t h e US growrzp id ly and by th e mid - ""& , he do ll nr begcm t o comeunder pressu re. The US few. i t s monetary gold stock deplet-i n g i n i t s attemp t t o maintn5.h t h e gold vnlue of do ll a r(& 1/35th of an ounce). Ih :I971* t h e r e f o r e , t h e US suspendeddo l l a r con ver t i b i l i ty i n go13 nnd a l so devalued tho do l la r .I n 1973, th e "fixed t1 exchangh r a t e system i t s e l f was abnn-doncd i n favou r of th e "flod$ingtr exchange r a t e sfstem (.underwhich nn rket fo rces , subdec t to c o n t r d banks1 i n t e r v e n t i o nfrom tima t o timo, dot ornine t he exchange r n t o aliments).

I t was o nl y t o be e xp ec tc d t h a t ~ 5 t hhe f ree ing ofgo ld p r ic e and exchmge rn te s , a s se t po r t fo l i o s o f the cen t r a lbnnlis md p ri v at e inv es to rs would chnnge. A f i n a n c i a l p or t-


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fo l i o nay be changed ei th er tb li!ncrese t h e expected r at eof re turn (o r y ie ld) .o r t o reld+dFthe ri sk in ds of th e ex-pected yield. A recent studyi q o w s t h~u~t~! i eLs" t ruc tu reo f expected r e a l r at ur ns of cUSltencies changed'.in th e 19708crea t ing n s t rong incent ive $0 ldovo out 'of tho do ll a r in too'l-iur c ~ ~ r o n c i o n ,d n l y ~ o u t c d d :rl.I


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3 .percentage changes in'efchange pbt and i t was applied tithe $/DN exdhmie rate . From '~ b b l e ' i t may be seen that

." the r e a l gold p r i c e has. incredshd. wit h increnSim3 exchanger a t e ,f luctu ation$ . 'and declined, +dthi'decriosing o x c h d g er a t c flu ctm tio n.g / Tho exchdn44 r n t o fluctuations trncoour the same c yc les as th e gold Idrice.

' The r el at io nsh ip obserbeq (needs to be exp lained. Onthe one hand, it could be argue4 [that rising exchange ratef1uctu.-.tiono croate an inc ent ive lto diversify tho asse tpo rt fo lio i n order to minimise' rtiFk. Bccause of t h e heavyconcentration o f t h e d o l l a r i n a spe t port fo l ios , d ive rsi f i -ca tio n ba si ca ll y implie s a movemknt out of d ol la rs i n t oe i t he r o ther currencies or in to kold. Thus i n a period ofin crea sin g exchange r a t e fluc tua $io n, the investment demandf o r gold rio oc , and hence e;old p r ic e goes Up-

Howover, i t would d s o be noted f r o m ~ a b l e tha tf l ~ c t u t i o n s n r ea l gold pr ice (est imated i n th e sme Wayas exchange r at e f luctuatio ns) are consi s tently grer terthnn the exchwge r ate , flu ctu atio ns. I t , therefore, hardlyseems right t o srgue that , div er sif ica t io n out' of ar re nc ie sir,t o g o l d i n periods of hi gh ly f luctuat.tfng exchmge r a t e i spr in & il y. a r i s k 'kininiising.mov1t.

I t s h o u l ? bo poted i n this1 context t h a t though goldpr ice f luc tua t ions .have.heen..gre&;er than exchange rat9 flu-ctu atio ns, the.tw p. hnve tchded t o idcreme md Secreme to-

12;/gcthsr.- Thus, i t could be in te rp re te d th2.t th e two s o t s


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of fluctuchions are ind ices of uncortointy in thoworld economy. 1 n c re k e d Gc e r ta i n ty c rea tes g re a te r in-centive for speculation. ~ k n c e n p er io ds of high uncertain-

Itg , a s re f lec ted i n the high fluctu ations , the inves-t.dcaand fo r gold goes up atad; gold pr ic e, th er ef or e, Mses.

To l i n k up with our brevious sect ion i t will bo notbdth at h igher expectat ion of 'nf la t ion ra te s has i n generdthccn accompanied by gr ea te r uncert ain ty, both re&~rdngthe incentive t o invest i n !gold.

I n 1981, howovor, oichnngo ra t ? in s t a b i l i t y rose whiloinfla t ionary expecta t ions Gold price fell, presu-

. .s ~ . b l y ,under tho combined .of laxer in f la t ipnary,expectations nnd high inted .est rat es which had rais ed the102;lortunity cos t of inveeti.lent i n gold. The largo erchaaga

. ,r at c fluc tuat ions which. co x isted with th e fall i n gold priceind in f la t io nary dxpec tn tigns ref lec ted vo la t i le in te res t. . % .ra te s and major i n nat ional in te re st ra tes.. I n the next sect ion1 we examine i n some d e t n i l th e

influence of in t er es t

S ec ti on 6 i , , I n t c r e s tSince gold does i3n i n t e r e s t , a r i s e i n in-

te r es t ra tes , ce te r is the . a t t rac t iveness. ..oC ~ u l d of compnrnhlo liquui-

, . 1noney mdket)10.) The chnrts

arc 'quit e strik ing. 1ns,je# if the inverse re la t ionship thatmay be expected from tlie : . ~ + v G c e t er i s . ~ n r i b u sreasonin& the


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two curves move rensonably p a r 9 l e l t o each other,. int er es tIrc te s showing the same c y c l i c 4 .tendency. his nay be see1

p a r t i c u l a r l y f r o m chart 10 where .moving avorages have beenI?lo tte d to smoothen out tem porby fluctuations.) Only fromt he f i r s t i u m t e r of 1980' t o th e f i r s t quarter of. 1981 do!inborest ra to s ml go l d prico move i n opposite diroctione.

To explain the positi ve, cor rel ati on between i nt er es tra te s and gold pri c es , which held over most of th e let decade~ r ct&e a diereasion into the kclationship botwoen business1cycles and i n t c r i s t rates.

ISus.incss cycles and interest ratesi

A t l e a s t a s far beck '8%Marshnll,. i t w a s noticed thatin t c ro s t r a t es are positiv ely dorrelatod with business mti -.v i ty over mo s t o f a business c j y c l e i ~ more rocent state- .ment has been made by C n g a n :

I, I... a t f i r s t investor look favourably on'IIca pi ta l pro jec ts des pit e th e, accompanyingr i s e i n in t e r e st r a t e s ; but i, f the r i s ingI ico st of cn pi ta l eve ntu bil y excoeds expect-' T I .ed returns, the resul t i* reduction i n in-

! / Ivestment expenditure lcp$i.d bring a down-tu rn i n business activity. Then ns theIdownturn gathers morn+m$ , buninoas proa-Ipect s dim even th e remanants. . i 1 8 ' .of optimism fade. 1nv.e b e n t undertakings

held back:&dhigh in teres t, 8


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re tc s no .longer evenwhen r a te s 'a rei n demand f q rt o r e s t . r a t e s w i l l dechine." (~&nn, 1969, pp 3-4.)j ' .. .To r e tu rn t o our bas& theme, i t appears unlikely

ith a t t he investment dcmmd f o r gold is l jrge enough to pulli .up or push'down t he in te re st ! ra tes . A more plausible expla-

nat ion seems t o l i e i n the 7 d . c pos i t ive l i nk between in tor -cst rn tc s md oconomic ,wtiyLty. That t h i s li nk a ls o hold.i n tho 1st decade may be seen. frd m cha rt s 9 and lO,,where.. .iworld trade has been used 38 a proxy for general-economicac ti vi ty . The reasoning as follows: a & ei n economic ac ti vi ky increased the&enand pres sure i n the parkdts f o r good nnd s erv ice s and ledI .t o & acc eler ation of 'price&;. tws.. .. r a is e d i n f a t io nn r y '& -

; p e c t a t i o i ~ smd created uncertainty , which i n turnh d the e ff e c t (as of raising the gold;rice; increase d also in c r e a e d demnnd forfunds , which led to ' r i s i ng h t e r e s t ra tes ; gold pr ice and

1 .i n t e r e s t.. ra te s .urcro thus see$ t o r i s e toge ther ; on thedownwad phase of t h e busin cycle, in t 'er est ra te md goldpr i ce f e l l as the demand pr w e i n the c a p i t d and good8mnrkcts respectively decline/dl.

whi lb th i s p i c tu re , i n1980-81 there. ( ns meosur-.ed by thc'.worla trade. indeb). .ptngnatod a f t e r having gr owonl y mnr gi na ll y 'i n . t h e pre?vibbq ge ar . T h i s put a downword


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pr e s s u r e on p r i c e s . The c o d s e' u en t d e c l i n e i n i n f l a t i o n a r yex pe cta tio ns would have pushe gold pr ic e down i n any case.

I 11 \I n a d di ti on , i n t e r e s t r a t e s , i ch norn ia l ly dec l ine (wi th as h o r t l a g) a f t e r gene ra l ecqn4dic ac t i v i ty s lows down, d idn o t f a l l ; i n s t e a d thoy rose! he r i s o i n i n t a r o s t r a t o sdespite we& demand a sc ri be d t o ,thoe f f e c t s o f . t h e c u r r e n t US ecoh mic policy. For our purposes ,i t would appea r th a t h igh i n tI!s t . r a t e s re i nf o rc e d t h e e f f e c t7 1 ,, ,0 .C i.owor ia Cl at io nn ry o&octn tiona i n pushing down gold p h cc .1S e c t i c n 7: Recent gold pr ic e movements

!I n ou r d i s c us s ion t hus f a r , we hc ve no t c ons ide r edI

t he i n f l ue nc e on go ld p r i c e o f p o l i t i c a l uphea val s , w a r s ,Ina t i on al bankr upt ics , runs on banlrs e tc . Such sp ec ia l eventsclo i n f l ue nc e go ld p r i c e md sonet imos qu i t e considerably.

. ,

They b r i ng i n a n a d d i t i o n a l e lem en t cf u n c e r t a i n t y nnd, tendt h et o r z i s d g o l d p r ic e . Our j u s < i f i c a ti o n i n i g n o r i n g t h e s e!

events i n e xp l a in ing t h ~r icd,movements over t he lnst decade' Il i c s i n t h a t t h e se s p e c i a l e v ' n t s do n ot e x p l ai n t h e 10%.i

te rm eold p r i ce movements; th d ir in pa ct i s of s ho r t du r a t i on ,Ihowever l a r g e mag be th e immec)'iote nr gn itu de of t h a t impact.,.I

Such even ts on ly modulate th e kn de rl yi ng movements of gold+r ic e . Thus, tha I ran -Iraq c f r on ta t i oh which broke upduring the upward phase of gold pr lc o cyc le pos s ib l y c roa todI .an a d d it i o na l u n c e rt a in t y a d , t o gold p r i ce sky-rocke 't-i n g t o $ 850 an ounce i n 1980. On th e o th er hand,t h e P o l i s h c r i s i s , which h a d * & l e a s t as much in te rna t iona l


21/41

s i g n i f i c j nc e as- t he . ran - I raq c r i s i s , occur red du ri ng aper iod wh m .gold pr ice w c s .on !the downward. phasb: although

. .. .t>e re were some b l ips i n the g o l d. p r ic c graph, no new recordl ev e ls of gd ld p ri ce were keacbed.

I t 1 3 n o t boing sug[;ost!od t h a t in, &.scu3sing long-I..('te rn movements one can d t o g e i lei. ig nor e e i t he r ' the off ect.Iof s ~ c i dvents or the sign$ficrmce of short-tern changesir, gold pr ice . ~ n d e e d , ho r t term chnrgcs necd t o bo studiodcarefully, b u t t h e i r s i g n i f i c cc can bcs t be unders tood i nthe f r'mework of besic long t e q t rends.

1Jenoted a t the outsht hhclt , gold pr ice hav ing reached, n s o r t of trough ounce, s t a r t e d moving up-. .wzrds i n June Yeptcmbcr the price rose. .21x2 ranched a S 500 an ounce. Sincet h e n i t has t o dec lin e, thoughi t has not 400 .an ounce.

m a y be re la tedwe discussod nbovo,

loi rc r in t c r e s t gold and thothere fore e r h c o ' .t he pusbidg i t s pri ce ua.a r ea d ly t h e r i s e i n t h i i d woe* of Junet o cn rl y ~ s p t e n b e r d l i n g . i nt e re s t r at es ,2nd the su bs eq uc nt accompanied by anod,i& up o f . n t c r e s t r a te s . b u t i n t e r e s t . r a t e s wero c l e a r l y. .I .not the ; la in inf loence. I t is: s i m f i c m t t h a t w hi le &-oldp r i c e s t a r t e d rising i n the . t hi rd we& of June, i n t e r e s t


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r a t c s s t o r t c d f a l l i n g o n ly i n t h o f i r s t rvcck o f July.

t o i n f l a t i o n a r y e x p ec t at io n s and e nc e t o a r i s e i n t h e in-vcotnent demand fo r t h a t i nSol tombar both gold pr ic ? and k l e commodity pr ic o index f e l l .

Thc r i s c i n go ld pr i ca : fr,om tho lbp$gh+$fof Juncsccns t o have fol lowed tho bcha4iour of commodi typr icea .l r o n early 1980, commodity pr ic d s h a d bcc n !allin;. But i nI.tlic t h ir d wcck of Juno, mctal p1 j i c a s t n r t c 4 ~ ~ ~ o v i n gp :rd

1dl othc r c~ mn bd i ty r i cc s hnrdAed. Betwcen June 22 and

1J u l y 20, t hc Economist i ndox of b c t a l p r i c xs r cg i s t c re d an

Though i n t e r e s t r a t c s y c l / Pomriodity pr i c c s sccm t ohz vc i n f l uoncc d t ho m c on t c l o i n gold pr i cc , t ho1 ~ x 3 ~pl i tu 'dc of tho cxpla incd by thoIlcxic,m payments c r i s i s f cars of dofaul to n d c b t by' otllor.i n ~ t c r n n t i o n a lb ar k s. i n gold p r i c ei n A u y s t ( o f t h c s e t i n motionb y 110xico' s~ 3 . u l 1 "1'

inprovcmcnt of 13 pc r cen t whi lo

I~rJlErof International Sct t lcmontp ho pr ic c of gold con-t i n u ed t o r i s e i n t o th o f i r s t wcbk o f S op tc nb cr ns t h e f e a r

IIs p rc ad t h a t o t h o r n a o r d a v e l o p i y . count ry borrowors , such

dl o t ho r components of thc. .co~!mlodi-Ly r i c c i n n ot c l c a r a tt h i s s t a g c what t h i s i n t h e c o m o d i t y p r ic ot rc nd was due to . t h a t i t cont r ibu t ed


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a s Brai5 .1 , . ~ r ~ c n t i i l ad Chiic;p??c about t o dh fa ul t onJA/t he i r deb t s .

Tho Mexican c r i s i s came; phcn go ld p r i c c w a s movingup. So i t appcrzo th at tho re[nbt ion t o the l lcxican noweor ~l y xa~gor :r tod fo r a whi l e tko t r e n d which had nlrondy boon

Is e t . Thc sharp f a l l t herc nf t c r r cprescnted o c o r r e c t i o n2d us t ncn t t o t he cxxge r n t ed wad movement.

Our s tudy of th o in te rn i t t i en d gold p d c e rnov&at .&Ii nd ica tes ' t hn t the r e a l gold pr i c e (nominal pr i c e def l a t edby tho p ri cc ind ex of manufactbe d exports) moved i n a cycl i -ccS 'fc3ldan durtng th e l a s t deei16cj The gold pr i c e cyclesIrrcrc, ' i t appears , caused by s p ~ c u l a t i v cnvestment i n .& l d .t,llc specu la t ive bchaviour , i n ,u rn , urm influenced by the.underlying cyclo s of econonic F t i v i t y (which were roprcsentodb i th e i n d c s of wo.r3fd 'tr ade ). lncre&ing e&nonic ac t iv i tygonorated : in f l a t id na ry expectai ions cLnd i ncreescd tho c ix t~nto f u n c c r t d n t y (as reflected i P i n c r e a a d & xc hn gc r a t o and, - o l ~ ~ . p r i c el uc t ua t i dns ) . An ' .~ ncen t i ve a s t hereforo , c rea t -ed ' t o i nc r easc specu l a t i ve i n gold, which. thenpushed .up. t h e gold pric e. econonid ac t i v i ty hadthe oppovibo cffcct.

Ik eneral., we found th)eft i n t e r c s t r a t e s d i d not.havea s igni f i cant . dmieni'ng ef f e t t l b? i gold p&ce. Risin g econo-u i c a c t i v i t y k;&d the ef fe ct of l 'hul ling up gold p r i ce and


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i n t e r e s t r a t c s s i m al t me o us l y. t h e f aco of I n f l a t i o n a r yexpectations and g r e a t e r t y , r i s i n g i n t e r e s t r a t e swcrc not ab le t o p u l l down gold Siccs . Also , i n 1974 - 75,if c l l i n g a c t i v i t y s i m n l t a n ~ o u s l y ad a d o pr os si ng e f f e c t ong old p r i c e a nd i n t e r e s t r a t o s .

Si nc c mid-1900, howevcr, i n t c r c s t r a t c s have been high( r i si n : s h a r p ly o ve r c e r t a i n p e r jod s ) evcn under st ron g def la-It i cn ar y condit ions . Thus gold pr ic e hns been under tho doublciinprcssing influonco of 3 dof la tqona ry s i tu a t io n nnd highi ~ l t e r e s t a te s .

That sp ccu la tiv c investment should hiv e been t he domi-n m t i n f l u e n c e o n g old p r i c e r e f l k c t s , p ro ba bly, t h e g r e a t e rc s l > o r t u n i t i ~ s o r f i na nc ia l specu n t io n nnd reduced expectedIe tu rn s from p roduc t ive a c t iv i ty f n the i970s nnd e a r l y 1980s.

ii ii; iiins 't the background of t he re 1 t ~ v e l y ew phenomenon of$"n t , ?g f la t ion" ( lon g term dece lo rd j ion i n p roduc t ion nnd r i s in gI

The re c en t 'b u oy m cy i n go1 p i c e , a f t e r t h e s ha rpif c l l t i l l June 1982, r a i s e s t h e q whether gold pricenay now be expected t o r i s e f o r s O u r a n al y si ss ug ge st s t n c t i n t h e s h o r t term i s u n l i k e l y t or i s e s i gn i f ic cn t l y s inc c world nccordinp:Co pre sen t proj eck ion s. i s~ a t e s r e n o t l i k e ly t o

I .i n f l i t i o n rc tc s ) , cyc l ic a l movements i n economic ac t i v i ty c rected

go ld p r ice w i l l r i s e only i f some i$ to rnnt ionn l c r i s i s deve-

s t r o n g i n c e n t i v e s f o r s p e c u l a t i o n

lops, b u t such a r i s c may only t o tc4pornry .

1 /i n gold.-


25/41

F o r t he . l p n g - m , o t he k f a c t o r s h av e t o be cons ide~cd.L'rpe rts who f or ec as t. i n upwar4 t r e nd id lg o ld p r i c e r e l y p r in -c i p d l y o n th r e e f ac t o rs . ~ i + s t l ~hcy:.dd n o t f o r es ee n?lyn ' ajo r b rea k th rough i n e i t he r @nua l ou tpu t o r r e l e a s e f rom

, ,- .9; ..t hc Sov ie t B lock . So now s u p q l l a of gold ar g oxpocted t o

s t a b l i s e a t t he c u r re n t l e ve l+ Sc'cen rlly,' monetary a u thor i-t i c , s , which a t one t im e p la y eq a ' s i g n i f i c a n t r o l e i n t h e g oldnnrke t , a r e no t e xpec te d t o r l i a s e monetary stoclcs of gold.Th ird ly , investment-cum-spocu nt iv o domnnd f o r gold i s ox-9

c ct ed , w i t h a l l i t s ups and ddwns, t o ma in tai n b r i s i h gtrend.

Even assuming t h a t ow su pp li es of gold have noimmediate prospect of , th e ot h er two assumptionsa r c no t q u i t e beyond doubt .' !Me' ~ a j o rword hanging overthe gold marke t i s heid by tPq lmonetary authorities who, a s, i n d i c a t e d. above , co nt ro l th e world s tock of gold .. .The more th e y hold on t o wi th ou t hav ing much mone-

, .t m y u se f o r i t . . t h e t h a t on? day- th cy n ay s t a r tdivestment

should th ey decide on th at couyse.Also, t he a ssumption thb t sp e c u l i t i o n w i l l oxe rc i se

a n u pw a d p r e s s u r e on g o l d p r i / c e depends n ~ tniy on the. .judgment of inees- tors on V l o .).ikc~.~'long arn ' s t r t ~ t o ~f


26/41

monetary authorities but d b d Ion the long-term tr en ds i .economic ac ti vi ty , pa rt ic ul al ia on the continuance of "dtag-fiction". The path of the Prltkmntiond price of gold isn o t no clonrly ii?dicntod as iln s,omotirnos uuggootod.


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Foot notes('The authors are grateful io C. ~ j a ~ & u m &o r his. s t a t i s -

t i ca l a ss i s tance)After 1961, Gold Pool w@ t h e i n s t i t u t i o n a l mechnnisnf o r lroopine tho nominal p ri co oT'gold at n c o m t m tlovol. For dc t3ils , ' se e Einzig, : 1972, pp 70 - 73.

. .. .OECDbsnrver, EX rch 1982, p. 9.rThe f igures ' m e col lLcted by the '?@ Int ern nt i onj lSettlements, and rephesent the external positions ofbanlcs i n tho group of Ton coun\trios, S w it zo rl n d,A ~ s t r i n ,Deiunarlc, Irplnnd nnd some off-shoro branches

of US b mk s . AJThe detcils above nx2 from Govatt and Govott. 1982,pp 87-88. IThe s ta t i s t i c s on @id supply nnd denmd flows uscdi n t h i s soct ion arc prom Comncrce, pp 1116 - 7 ,which, i n tu rn , has nlccn t h e fi gu re s from Consoli-datcd Gold Fields L t . Annual Report , 1982.India n production i n the 1970s has been around 3 tons.Thc rensons fo r prof gold i n in fla tio na ry andunccrtnin si t uat ion s sought i n t r a d i t i o n a lmd p s y c h o lo ~ i c a l i1.See Roosn et ill, 19'?,, Tables 1 nnd 2. The expectedra te s of re tu rn on !a ol la r changed i n nid - 198017i th a l a r ee inc rcase in US i n t c r q s t r a t e s , rmd theIshar o of th o doll aq jjq in tcrnnt ionnl landing incroa-ed the rea f te r .The peak at ta in ed i n ym unr y 1900 was par t ly influen-ced by th e I r a - I r a q lc n fl i c t. However, even idl a t e 1979, the r e d . p&cc of @ l d wn s a i g n i f i c m t l ghigh er t h m ' i n Dec be$ 1974, when the o n r l ie r pcaka r a c e ( T h e ~ o ~ fof pn rt ic yl ar ovcnts. suchas t he I r h - I r a q on vf> c,t , i n dioo~~nnodo 3 . o ~ nsoct ion 7.)The measure 'captur&l #uc tun tiom aro imd n trend re-presented by tho avern a of tho monthly growth ra te s.I YThe imp orta nt Arc th e ye ms 1979 and 1981.These ,are


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Once $gain--l979 a n d 1981 3rc exceptions.In 1979, exchange r a t e f l u c tu a t~ . o n s i ' f l l , w g l e g ol dp r i c e f l u c tu a t i o n s i nc re as le d. Th is sugges t s ' thn t. ..t h e . h ig h i n f l a t i o n a r y ' e x p ~ c t s t i o n s n t h a t y e a r o na cc ou nt of t h e . s h a r p r i s e iin p e t r o l e m p r i c e ( a f t o rf ou Y y ea rs o f s t a b i l i t y ) & s ul t ed i n cm nttomptcdmovement out a l l cur ron cir b i n t o gold . The 1981oxporionco i a d i ~ c u m o d ~ ! l i l w n '.tho ma in-to xt.

11/' S u e EI ~ r s h a l l , , 9 23, p 257 b d al so Robertson, 1959,p p . 8 0 - 82 .. . . ,1 'j/ ' No corresponding + a ly s i s f tho Ind inn go ld prico- novcnmt s was at te mpt ed. %om the' l k d i a n p0in. t -ofv i e w , t h e d i f f e r e n c e b et vc $n -t he i n t e r x i a ~ i o n n ld'-'I n d i a n g e ld p r i c e i s of importnncc. Thisd i f f e r e n c e p r i n c i p d l y e x t en t ofsn ug gl in g of go ld and movementsi n f o r ~ i g n xchange. I n d i a n view

novencnt i s extremely imgop o i n t , a.g' - ,

1 6 / This ra i se s some- t ionsh ip be t i i een ..and i t s im-pac t on the.go in to


29/41

Tcble 1. Growth Trends i d t h o World Economm u d a t e ovey / a f a o u. periodf

Crosr.t!l r n t c 3 of :I ) World gross dome-s t i c p r od ac t 5.6

! l o t o : Crou.L;h ra ton for 1981 .qo pr oli min nry nnd f o r 1982 aro forocasta.... ..Source : UlT (1982)~woi. ld~Economic:uve y , 198142 , lit% York,Table 1-2. @ 9.

?abl e 2: Unc ert c int s bnd old P r i c eI

; R e d . '.Exchnnp,:, ,Yccr. . ~ 3 t o J ~ o l d r i c o ' R e d. .. Flucf ua t ions . .? luc ua t i ons Gold Price


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SUPPLY OF GOLD(METRIC TONS)q:->n.- I '..A., ',A, -.1/ 11600

//

\ ;

i: . , - 1200'. . I "Z'Y: .:..:"II

itI'L.-,.-T--,--REAL OrjLD PRICE

- - - - . - -

~ ~ U R C E!) COhn,hAtERCE,. 1982 ppl l l6 -72 ) i ~ \ F , NTEITNATICNIdL FINANCIAL STATISTICS,VARIOUS ISSUES.


31/41

1300... .--el\. / " '! \ .~\1 'I\ . I'i , ' i.l /r\ Ii i\i I '\I \ I , . :i . , I '!Fir! j. - \

1 I I ii \ I 1 I'' I I . 'T i'/Qi I'.\.--- I--' . \ ; .I /' \ ; I I! I

I1 / I '\ I I ?

I' I II i:6 I--.7-. .I.-.-...7 _ ...-. ..!- .-.T -... .---,...-..,-.-.1 7"'-' IIj oo

1071 72 7 7. 4 75 76 7 j 78 79 $3 811--.---.- R'FAL Gi3L.D Prd\i:.E INDEX- .- .- ... -. .jF_\N&i.:..ARY DFNTtSTRV 'ELECT ON !C .APjO iS'fiifll< F I D~ JSTR I AL~EZOI?I'\T~~'T:USES OF c?C?LO.- '


32/41

EAL, GoL9 FRiCE ~ N D E x ~ ~ ~ ~ = I ~ c ) )K.2 BULLION D E M A N D CN~ETRICONS.

60C

BULLION DEMANDAS PERCENTAbE OFGOLD SUPPLY

---- REAL COLD PR!CE- - - - - ULLION DEMAbIP... . . BULLION DEMANCi AS PER CENTAGE OF'YO-rAL GOLD DL;LLIOI\I SUPPLY.

CHART 3SOURCE : ASnINCHART i


33/41

REAL GCLU PRICE IP!VF X.- - - - - BULLION HOLDINfi5 - OFFICIAL.LOINS


34/41

PRICE INDEX ~ ~ M = I O C P )RATE OF GROWTH ('o/,

REAL OLD PRICE INDEX- -- -- RATE kF 6RO\Nf H OFPETROLEOM RRICECHART 5SOURCE : IMF, INTERNATIONAL FINANCIALSTATISTICS ,VARIOUS ISSUES


35/41

. . . NOM INAL PETROLEUM PRICE INDEX- - --- . EAL PETROLEUM '~QICENDEX----- REAL GOLD PRICE

C I i ART 6SOURCE: AS IF4 CHART 5


36/41

- - - RASE OF O R O W H OF E~ KT UNIT VALVEI NDEX C3F: M.NUFACTUC I-i,~\R"I' '"7s o ~ ; n c ~ : NV, I~~TIZ .R~~ATION,~~LINT ;~NC. !ALSTAT\Sl;T\CS,VARIOUS ISSUES

2) LIN, MC~NTHLY BULLET~N F GTATtST\CS,VARlULAS I S S U E S


37/41

PRICE INDEX ~ 9 7 5 = 1 0 0 )

REAL 601-0 PRICE, INDEX-, -- REAL FOOD @RIG ECHART 8SOURCE: A 5 IN CYART 7


38/41


39/41


40/41

WORLDTRADE lNDLg

cl975=109T '


41/41

References:1 . Cagan, Phili; , 196 The inf lue nce ofiin t e r e s t r a t e s o n , t h e d u ra t io n o fbusiness cyclos Gut tentag, JcckM and Cagan ed' Essa ys on in -t e re s t Na t iona l BureauColumbia Uni-2. Commerce, June 2~61 1982.

I

3, Dombusch, R. 198 r a t eeconomics: where1B r o o k i n ~ s , i p e r s j d Economic Acti-m,No. 1 , 1980.

4. Economist, Septem e 11, 1982.115. Einz ig , ~ i u l97f pbtiny f gold,Macnillm, Londo 16. Govett M H and Gdem&.md ' supplVol. 8 , No. 2,7. J a s t r m , R oy W 197b The golden co nst ant :the Engl i sh c7.d A I U ~bcan experience,1560 - 1976, 3 i t ondd P r e s s Pub l i c a t i on ,

John Wiley and Sontjr.8. K o u r i , P e n t t i J K b d de Macedo, JorgaBragn 1978 Exchange r a t e s and t he in -t e r n e t i o n d a d ustqi en t p r oc es s , a k -i n ~ s apers'of Economic Activity,

No. 1 , 1975.9 . l,l(lachlup, F r i t z 1969 Spec ui ati on on gol dspeculation American Economic ReviewVol. 59, No. & . E N 1969.

10. Ha rs ha ll , Alfred 1423 Money, Cr ed it andComerce, Augustus M. Kel loy , New York.1 1 . OECD O h n o r v u r , Muroll, 1932.

I

12. Robertsan, Dennis 11/959Lbctures onEcononic Pzin cipl cq, Vol. 111, S t a p l e sPress, LonLon.I . Koosa, Robezt V e t la1 1982 Reserve

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Intarnational Gold Price Movements, 1972-1982 I .S. Gulati nnd dshoka Hody

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