<p>What is markets loosing faith in central banking... they don't belive that central bank can handle a crisis situation. Main job of a central bank is to issue legal tender against a reserve like gold or any valuable reserve. So when markets no longer believe in central banking, they stop believing in the currency issued and they look to hoard the valuable reserves like gold, which naturally increases it's demand and inturn it's price. Hope this answers your question. Any correction is appreciated.</p>

CC BY-SA 4.0
2024-06-26T18:36:49.743Z
2024-06-26T18:36:49.743Z
sravan316
<p>I think @DornerA gave a good answer for reasoning behind the mechanism.</p>

<p>For a historical example, look no further than the fiscal crisis and the rapid increase in gold price from 2008-2011. </p>

<p><a href="https://i.sstatic.net/DYfia.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/DYfia.png" alt="Gold price, 10 year sample"></a></p>

<p>Of course a lot happened during those years with house prices collapsing in the U.S. Faith in central banking is closely associated with the value of money and the belief of whether a central bank can keep the economy steady or not and in a situation where this belief is low, people gravitate towards widely accepted stores of wealth.</p>

CC BY-SA 3.0
2016-04-15T17:08:21.010Z
Feel free to add a summary of my comment in your answer if you'd like to make it more complete (I'm not going to hound you for credit lol)
DornerA
CC BY-SA 3.0
2016-04-16T21:00:59.080Z
Sorry but you havent quite explained what happened in 2012 to make gold decrease in avlue.
Trajan
CC BY-SA 3.0
2016-04-18T05:20:47.073Z
What you see is the market reacting to multiple things with increasing faith on central banking being one of the factors. One could argue that the value of gold is slowly returning to a steady state growth path.
John L.
CC BY-SA 3.0
2016-04-15T07:35:19.130Z
2016-04-15T07:40:28.830Z
2016-04-15T07:40:28.830Z
John L.
<p>In this article here, <a href="http://www.telegraph.co.uk/investing/gold/gold-resurgence-whos-buying-gold-and-why/" rel="nofollow">http://www.telegraph.co.uk/investing/gold/gold-resurgence-whos-buying-gold-and-why/</a> , it states that "gold tends to do....best when markets lose faith in central banking".</p>

<p>I understand that gold does well when other assets do badly as it acts as a store of wealth, but I cannot understand why it does well when markets lose faith in central banking. I can see that if central banking isnt working markets are probably doing badly, but the quote seems to imply a deeper and more direct connection.</p>

<p>Also can someone think of a historical example when this happened.</p>

CC BY-SA 3.0
2016-04-13T23:04:21.667Z
When people lose faith in central banking, they think their currency will depreciate. When this occurs, they look for something like gold to store their wealth in order to maintain purchasing power. When more people demand gold, the price is driven up
DornerA
CC BY-SA 3.0
2016-04-16T08:48:05.047Z
@DornerA I think my question is more about why is that they think their currency will depreciate if they lose faith in central banking? Also please post this as an answer.
Trajan
<reference-request><monetary-policy><central-banking><financial-markets><value>
Gold and loss of faith in central banking
Trajan
# Gold and loss of faith in central banking

(Asked by: username_0 on 2016-04-13)

In this article here, <http://www.telegraph.co.uk/investing/gold/gold-resurgence-whos-buying-gold-and-why/> , it states that "gold tends to do....best when markets lose faith in central banking".

I understand that gold does well when other assets do badly as it acts as a store of wealth, but I cannot understand why it does well when markets lose faith in central banking. I can see that if central banking isnt working markets are probably doing badly, but the quote seems to imply a deeper and more direct connection.

Also can someone think of a historical example when this happened.

**Tags:** reference-request, monetary-policy, central-banking, financial-markets, value

> **Comments:**
> **username_1**: When people lose faith in central banking, they think their currency will depreciate. When this occurs, they look for something like gold to store their wealth in order to maintain purchasing power. When more people demand gold, the price is driven up  
> **username_0**: @username_1 I think my question is more about why is that they think their currency will depreciate if they lose faith in central banking? Also please post this as an answer.  

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## 2 answers

### Answer by username_3 on 2016-04-15. Score: 2 | Accepted answer

I think @username_1 gave a good answer for reasoning behind the mechanism.

For a historical example, look no further than the fiscal crisis and the rapid increase in gold price from 2008-2011.

[![Gold price, 10 year sample](https://i.sstatic.net/DYfia.png)](https://i.sstatic.net/DYfia.png)

Of course a lot happened during those years with house prices collapsing in the U.S. Faith in central banking is closely associated with the value of money and the belief of whether a central bank can keep the economy steady or not and in a situation where this belief is low, people gravitate towards widely accepted stores of wealth.

> **Comments:**
> **username_1**: Feel free to add a summary of my comment in your answer if you'd like to make it more complete (I'm not going to hound you for credit lol)  
> **username_0**: Sorry but you havent quite explained what happened in 2012 to make gold decrease in avlue.  
> **username_3**: What you see is the market reacting to multiple things with increasing faith on central banking being one of the factors. One could argue that the value of gold is slowly returning to a steady state growth path.  

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### Answer by username_2 on 2024-06-26. Score: 0

What is markets loosing faith in central banking... they don't belive that central bank can handle a crisis situation. Main job of a central bank is to issue legal tender against a reserve like gold or any valuable reserve. So when markets no longer believe in central banking, they stop believing in the currency issued and they look to hoard the valuable reserves like gold, which naturally increases it's demand and inturn it's price. Hope this answers your question. Any correction is appreciated.


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