Question

Easing of international tensions or disinflation cause gold prices to: A. decline. B. change, but the direction of the change cannot be predicted. C. increase moderately. D. skyrocket. E. remain stable.

Answer 1

Answer:

the correct answer is option a) decline

Explanation:

Prices of gold at the time of inflation goes up because over a long inflationary period people think of gold as a tool for hedging against such conditions, and that is why people hold money in form of gold , which leads to the prices of gold rising.

Similarly in the situation of international tensions , prices of gold goes up because people think them as a safe heaven for putting their investments. While these international tensions have negative impact on all other asset classes except gold.

So from the above explanation we can say that when the international tensions are less or there is a situation of disinflation in the economy the prices of gold will fall or decline.