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Metal Commodities: Gold Is King

Perhaps no other metal — or commodity — in the world has the cachet and prestige of gold. For centuries, gold has been coveted and valued for its unique metallurgical characteristics. It was such a desirable commodity that it developed monetary applications, and a number of currencies were based on the value of gold.

In 1944, for example, 44 of the world’s richest countries (including the United States) decided to peg their currencies to the yellow metal, in what is known as the Bretton Woods Agreement. Although President Nixon removed the dollar from the gold standard in 1971, many countries still use gold as a global currency benchmark.

In addition, gold has a number of applications in industry and jewelry that have resulted in increased demand for this precious metal.

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In 2006, gold was trading in the range of $500 per ounce; the gold price at the end of 2010 was $1,450 per ounce. Investors who invested in gold in 2006 would now be up approximately 300 percent at a time of increased volatility and reduced returns in the global market indexes.

The outlook for gold during the next five years remains positive. Overall, demand for gold will likely continue to increase, especially as a store of value, driven in part by the weakening paper currency environment that’s a result of expansionary monetary policy in the Organization for Economic Cooperation and Development (OECD) countries.

As paper currencies come under increased pressure, expect demand for gold to increase. Of course, no investment goes up in a straight line, so expect a bumpy ride and some periods of big pullbacks along the way. For more on gold and the world economy, visit Commodities Investors LLC.

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