100 year gold price history:Historical pullbacks in gold prices have been long and severe.To get closer the real value it is more important to compare gold?s price change to the inflation. (More precisely, to the customer price index, CPI.)One awaits that if gold is protecting us from inflation, its price follows CPI. Well, its price hasn?t always followed CPI. From historical point of view, it had serious spikes in 1980 and since the financial crysis broke out in 2008.Using CPI we can make a couple estimation for the real value based on a couple years** (eg.: closing price was $909.9 in 1980-01-22, CPI was 77.8 in January, 1980, CPI was 232.9 in May, 2013 was, so current price according to CPI is $909.9 * 232.9 / 77.8 = $2724.4):CPI valuegold price ($)price according to CPI ($)

19139.820.7491.3

195023.540.5401.5

197968.3224.1764.3

198077.8909.92724.4

You can say thatone can explain any gold price using inflation, if numbers are chosen carefully :-)

Truth be told, gold's price in 1980 has been driven by massive speculation. Nobody can take seriously any present value calculation based on that - it is just misleading.

All other calculations tell, that price above $1000 is too much today.But this does not mean that it has to go any higher nor means it that it has to fall.

Gold price relationship with GDP (Pakistan):Gold prices are a good indicator of how healthy the U.S. economy is. When the price of gold is high, that's when the economy is not healthy. Why? Investors flock to gold when they are protecting their investments from either a crisis or inflation. When gold prices drop, that usually means the economy is healthy. That's because investors have left gold for other, more lucrative, investments likestocks, bonds or real estate.By June 2013, The price of gold continued to fall and was at $1,402.50 an ounce. If you look athistorical gold prices, you'll see that it will probably continue this downward trend. Before the 2008 financial crisis, gold hovered around $400 an ounce.Gold price relationship with inflation:Gold prices have attracted considerable attention for their potential effect on inflation. Like other assets that are found to predict inflation behavior because their returns embed inflation expectations, gold prices can also serve as a leading indicator of inflation. This argument has been put forward by many researchers based on the failure of some financial assets to predict the behavior of inflation over a longer period of time (see, for instance, Stock & Watson, 1999; Cecchetti, Chu, & Steindel, 2000; Boivin & Ng, 2006; Banerjee & Marcellino, 2006).There is very little literature on the inflation-predicting properties of gold and other financial assets in Pakistan. Gold prices have not been incorporated into inflation dynamics, nor has the relationship between inflation and asset prices been closely explored. This is because the idea is a relatively new one in the first case, while studies on the latter expect the two variables to be related in the opposite direction. However, with the heavy use of gold in Pakistan1 and the integration of its financial markets with international markets, it is reasonable to assume that both variables may contain some information about inflation.Gold prices have attracted considerable attention for their potential effect on inflation. Like other assets that are found to predict inflation behavior because their returns embed inflation expectations, gold prices can also serve as a leading indicator of inflation. This argument has been put forward by many researchers based on the failure of some financial assets to predict the behavior of inflation over a longer period of time (see, for instance, Stock & Watson, 1999; Cecchetti, Chu, & Steindel, 2000; Boivin & Ng, 2006; Banerjee & Marcellino, 2006). There is very little literature on the inflation-predicting properties of gold and other financial assets in Pakistan. Gold prices have not been incorporated into inflation dynamics, nor has the relationship between inflation and asset prices been closely explored. This is because the idea is a relatively new one in the first case, while studies on the latter expect the two variables to be related in the opposite direction. However, with the heavy use of gold in Pakistan1 and the integration of its financial markets with international markets, it is reasonable to assume that both variables may contain some information about inflation.If not stabilized at a moderate level, inflation can have severe consequences for the economy. Gold provides a complete hedge against unexpected inflation but not against expected inflation. Real estate provides a significantly more-than-complete hedge against expected inflation, but not against unexpected inflation where the relationship is negative and insignificant.Stock exchange securities appear to potentially outperform other assets in providing a hedge against unexpected inflation. The results indicate a negative but insignificant relationship with expected inflation. The results for foreign currency imply a positive but insignificant relationship with both expected and unexpected inflation. The insignificant role of foreign currency as an inflation hedge can be explained by the fact that currency swapping in Pakistan also occurs through informal markets and not just through banks. Such currency swaps are not reported but their contribution is enormous.Gold price relationship with US dollar:The prices of gold and the US dollar share different relationships in different circumstances. Here's throwing light on some of them. Gold is considered to be a hedge against inflation, recession, and other times of uncertainties, especially due to its high demand and finite supply. This precious metal was, for a long time in history, used as currency, and is still a safe haven for investors. Consequently, most central banks around the world invest more in gold to preserve their assets during volatile economic conditions. On the other hand, the US dollar is widely accepted as an instrument of global currency exchange. Hence, most central banks also invest their funds in the US dollar.There is an intrinsic co-relation between gold prices and the US dollar. When the demand for the US dollar falls, banks as well as investors around the world invest more in gold.There is an intrinsic co-relation between gold prices and the US dollar. When the demand for the US dollar falls, banks as well as investors around the world invest more in gold. This measure helps them protect their money and hedge against uncertainties. The demand, and consequently the value of gold hence increases. Similarly, when the US dollar appreciates, an increasing number of investors shift their investments from gold to the US dollar. This fall in demand causes the value of gold to depreciate. This behavior of investors creates an inverse relationship between gold and the US dollar. However, it would not be appropriate to conclude that the price of gold and the US dollar always move in opposite directions, mainly because other external factors also impact the prices of these two instruments. Some people, for instance, might invest heavily in gold during a recession, whereas others might consider the US dollar to be a safer investment. In such a situation, the value of both these options might go up.Gold price relationship with oil:In the financial markets, gold is usually ascribed to the commodities category. In this group of assets you will find your good old friend, silver, along with several others metals like platinum, palladium, copper etc. Apart from that, commodities encompass a broad range of other products in the like of corn, but also crude oil, gas, minerals and other. Such groups of assets are usually traded on commodity exchanges specialized in this kind of products, for instance on the Chicago Mercantile Exchange or the London Metal Exchange.Commodities differ from stocks or bonds in the fact that, usually they have significant importance for some industry. For example, silver is used in the production of electrical conductors and oil is used as fuel for various kinds of machines. The main difference from a financial point of view is that, other than bonds and stocks, commodities do not give you cash flows in the like of dividends, coupons or the principal. The only way in which commodities generate returns (excluding industrial applications) is when their price changes in the direction you bet on.The main idea behind the gold-oil relation is the one which suggests that prices of crude oil partly account for inflation. Increases in the price of oil result in increased prices of gasoline which is derived from oil. If gasoline is more expensive, than its more costly to transport goods and their prices go up. The final result is an increased price level in other words, inflation. The second part of the causal link is the fact that precious metals tend to appreciate with inflation rising (in the current fiat monetary environment). So, an increase in the price of crude oil can, eventually, translate into higher precious metals prices.To sum up, there seems to be a relatively strong relationship between gold and oil prices but not between gold and oil returns. The strength of the relationship between gold and oil coincides with high or low gold returns. This relationship may not be useful for speculation over the long term but its possible that patterns emerge locally, in short time spans. Results of our analysis of the relationship between gold and oil show that if you are considering entering the gold market and the relationship between gold and oil is strong but deteriorating, you may want to double check the current situation on the market. Additionally, if you are to enter the market and the above-mentioned relationship is strengthening, this could coincide with considerable movements in gold to either side. You might want to check additional factors to confirm which side it might be.To sum up, there seems to be a relatively strong relationship between gold and oil prices but not between gold and oil returns. The strength of the relationship between gold and oil coincides with high or low gold returns. This relationship may not be useful for speculation over the long term but its possible that patterns emerge locally, in short time spans. Results of our analysis of the relationship between gold and oil show that if you are considering entering the gold market and the relationship between gold and oil is strong but deteriorating, you may want to double check the current situation on the market. Additionally, if you are to enter the market and the above-mentioned relationship is strengthening, this could coincide with considerable movements in gold to either side. You might want to check additional factors to confirm which side it might be.Info on gold reserves:A gold reserve is the gold held by a national central bank, intended as a store of value and as a guarantee to redeem promises to pay depositors, note holders (e.g., paper money), or trading peers, or to secure a currency.t the end of 2004, central banks and investment funds held 19% of all above-ground gold as bank reserve assets. It has been estimated that all the gold mined by the end of 2011 totalled 171,300 tonnes. At a price of US$1500 per troy ounce, reached on 12 April 2013, one tonne of gold has a value of approximately US$48.2 million. The total value of all gold ever mined would exceed US$8.2 trillion at that valuation.Gold pegging:Gold peg is a term for the par value in gold of a particular currency that is backed by a gold standard. Maintaining a particular stated gold price is considered a matter of confidence for a currency. A government devalues its currency if it increases what it will pay in that currency for a specified amount of gold. In European history, the unit of gold commonly specified is the troy ounce, with 12 troy ounces to a troy pound.A peg is almost never exact, generally there is a trading range of gold to a currency.Since the early 20th century the most important price for gold was the London Gold Fix which set the price for gold for physical settlement between five important market makers in London. While the spot price often differed from the Fix, it is widely quoted and used as a bench mark for futures prices and other settlements in gold.There are a variety of reasons why a government or bank would want to devalue currency, either because of a desire to print more notes, or a lack of reserves to pay demands. A currency where gold is leaving the country is said to be "under pressure" and steps taken to keep the peg in place are said to be "defending" the currency. These terms have continued even after the international monetary standard is no longer based on specie.Pegs exist in monetary policy that are not to gold, for example a dollar peg means that a currency is closely tied to the dollar.