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Gold Prices During and After the Great Recession

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Gold, a highly valuable precious metal, has many practical uses that span multiple industries. Historically, one of the primary uses of gold has been to make objects, such as jewelry. Malleability is one of gold’s special properties, allowing it to be hammered into sheets, drawn into wires, and cast into different shapes. In addition to jewelry, gold is used to manufacture many products that we use in our everyday lives, especially electronics. This is because gold is an efficient conductor of electricity, and electronic components made with gold tend to be very reliable. Televisions, cell phones, calculators, Global Positioning System (GPS) devices, and computers are examples of products produced with small amounts of gold. Gold is widely used in other areas, as well, such as the medical, aerospace, and glassmaking industries. Beyond its artistic and utilitarian uses, gold is used as a vehicle for monetary exchange through the issuance of gold coins and bars. (The former gold standard was established as a monetary system in which the standard economic unit of account was a fixed weight of gold.) Even though the United States transitioned to a system of fiat money (deriving its value from regulation) in the early 1970s, many investors continue to use gold as an investment to hedge against inflation, currency weakness, and other economic disruptions. Federal Reserve Chairman Ben Bernanke is of the opinion that gold prices are influenced by many factors. In 2011 he said, “Well, I pay attention to the price of gold, but I think it reflects a lot of things. It reflects global uncertainties. The reason people hold gold is as a protection against what we call tail risk, really, really bad outcomes. And to the extent that the last few years have made people more worried about the potential of a major crisis, then they have gold as a protection.”

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2013-02-01

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gold prices; Great Recession; Producer Price Index; PPI

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unassigned

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