International Issues

Why is Gold Tarnishing?

Gold has dropped sharply in price during the past two years. Some analysts attribute the decline to increased selling by the world's central banks. Others point to the increasing popularity of U.S. government bonds which -- unlike gold -- pay interest. Then there is the theory that with inflation tamed, deflation may be around the corner -- eliminating gold's allure as an inflation hedge.

  • Gold prices have slumped nearly 25 percent to just over $280 an ounce since the start of last year -- their lowest level since 1979.

  • There are 11 billion ounces of gold on world markets.

  • Since 1990, central banks have sold off 5 percent of their gold stockpiles, including 12 million ounces in the past year.

  • But private holders have added some 600 million ounces to their stocks in the past year, far more than the banks have sold.

The future European central bank has said it will hold very little gold in reserves. The Swiss central bank has floated a plan to sell half its reserves. Australia's central bank sold two-thirds of its reserves this year.

A recent study by analysts at the U.S. Federal Reserve -- which holds 262 million ounces of gold -- suggests it might be good policy to sell off a portion of those stocks.

Source: Perspective, "Gold's Lost Luster?" Investor's Business Daily, December 10, 1997.

Home | Support Us | All Issues | Social Security | Debate Central | Contact Us

Dallas Headquarters: 12770 Coit Rd., Suite 800 - Dallas, TX 75251-1339 - 972/386-6272 - Fax 972/386-0924
Washington Office: 601 Pennsylvania Avenue NW, Suite 900 South Building, Washington, DC 20004 - 202/220-3082 - Fax 202/220-3096
© 2001 NCPA