The price of gold has hit a record high of over $1282 per ounce. By contrast, in 2007 it was trading at under $700 per ounce and in 2001 at under $300 per ounce. Various uncertainties in the world economy have led to large rises in the demand for gold by both central banks and investors in general.
But why has the gold price risen so dramatically and what is likely to happen to the price in the coming days and months? Some commentators are saying that the gold price has further to rise. Others are saying that it is already over priced! The following articles look at the explanations and the arguments.
Articles
Monetary easing fears lift gold to record high Financial Times, Javier Blas (17/9/10)
Five-fold rise in gold price ‘is not a bubble’, claims industry body Independent on Sunday, Mark Leftly (19/9/10)
Gold Prices Today Are Increasing to Record Levels Business and Finance News, Aidan Lamar (18/9/10)
Gold hits new peak of $1,283 Telegraph, Richard Evans (17/9/10)
Gold hits new record high Guardian, Julia Kollewe (17/9/10)
Gold prices – the highs and lows since 1971 Guardian, Julia Kollewe (17/9/10)
Gold is overpriced, so be wary of those ads to buy it Idaho Statesman, Peter Crabb (17/9/10)
Data
Gold prices World Gold Council
Commodity price data (including gold) BBC Business: Commodities
Questions
- Why has the price of gold risen? Illustrate your arguments with a demand and supply diagram.
- How are these demand and supply factors likely to change in the near future?
- What is the role of speculation in the determination of the gold price? What particular factors are speculators taking into account at the moment?
- Why have actions by the Bank of Japan (see A Japanese yen for recovery) influenced the gold price?
- Why have possible future actions by the US Federal Reserve Bank influenced the gold price?
Rising costs of cloth and a rise in VAT could mean that clothes prices are set to rise. Does this spell the end of cheap fashion from the likes of Primark and H&M? Or can they absorb the cost increases?
The following articles look at the causes of the rise in costs of clothing and what the cheap fashion chains can do about it.
Articles
Primark follows fashion rivals as it warns of rising costs Guardian, David Teather and Zoe Wood (13/9/10)
Primark warns on costs as growth slows Telegraph, James Hall (14/9/10)
Is this the end of cheap clothes era? Price of cotton has rocketed because of floods, Primark warns Mail Online, Sean Poulter (14/9/10)
Fashion chains far from cheerful about future of cheap chic Observer, Zoe Wood, David Teather and Julia Finch (19/9/10)
Data
Commodity prices (including cotton) Index Mundi
Cotton futures BBC Business: Commodities
Questions
- Why have cotton prices been rising? Illustrate your arguments with a demand and supply diagram.
- Would you expect a rise in the price of cotton of 45% to lead to a rise in the price of cotton clothes of 45%, or of more than 45% or of less than 45%? Explain.
- For what other reasons are the prices of clothing rising?
- How did the process of globalisation keep the price of clothing down?
- Next’s chief executive, Lord (Simon) Wolfson said that if prices of Next’s clothes go up 8% then the number of units sold will fall by 10%. What is the value of the price elasticity of demand that he is assuming?
- Why is the ‘Fairtrade system so important’?
- “Some retailers have already increased prices but there is more to come. The products most under threat are T-shirts, underwear and socks. More complicated garments such as heavy jeans will be less affected.” Why are the prices of more complicated garments likely to rise by a smaller percentage than those of simple garments?
- What has been happening to the demand for cheap fashion clothing and why? Combine this effect with those of costs on a demand and supply diagram.
- What type of market structure is the market for fashion clothing? What are the implications of this for the profits of retailers?
With the full impact of the fiscal austerity measures yet to come, the fall in unemployment revealed in the latest ONS labour market release is probably a lull before the storm. Nonetheless, in the three months to July unemployment fell by 8,000 to 2.467 million, while the rate of unemployment – the number of people unemployed expressed as a percentage of those economically active – fell from 7.9% from 7.8%. But, within the ONS release we again saw an increase in the number of people who are long-term unemployed.
The number of people aged 16 or over who have been unemployed for at least 12 months stood at 797,000 in the three months to July. This represents an increase of 15,000 over the previous 3 months. While the pace of increase appears to have slowed – the number had risen by 100,000 in the three months to April – the pool of people who can be described as long-term unemployed is undoubtedly of much concern. To put this number into perspective, it means that of the 2.467 million people unemployed 32.3% have been so for at least a year. In effect, one-third of the pool of unemployed can now be thought of as long-term unemployed.
Of the long-term unemployed, 547,000 or 69% are male. This is the highest number of males described as long-term unemployed since the three months to May 1997 – the month when the Labour government of Tony Blair came to power. But, the historical context for female long-term unemployment is even bleaker. A further increase of 4,000 over the 3 months to July means that the number of females who are long-term unemployed has risen to 250,000. The last time long-term female unemployment was higher than this was in the three months to September 1995.
An obvious concern with the expectation that the total unemployment figure will grow in the not too distant future is that the number of long-term unemployed people will carry on growing. Of course, this not only has unfortunate implications for these individuals but for society and the economy more generally. Consequently, it raises some important and very difficult economic and social policy questions. One important economic question, for instance, is how we tackle the erosion of human capital as more and more individuals are divorced for longer and longer from the labour market. An erosion of human capital affects individuals and society not only in the present, but in the future too.
Articles
UK unemployment falls by 0.1 pct to 7.8 pct Associated Press (16/9/10)
Wasteland: Europe stalked by spectre of mass unemployment Independent, Alistair Dawber (16/9/10)
Job fears despite employment rise Telegraph, Angela Monaghan (16/9/10)
Part-time jobs fuel record rise in employment Express, Macer Hall (16/9/10)
UK unemployment falls to 2.47 million BBC News (15/9/10)
Data
Latest on employment and unemployment Office for National Statistics (15/9/10)
Labour Market Statistics, September 2010 Office for National Statistics (15/9/10)
Labour market data Office for National Statistics
For macroeconomic data for EU countries and other OECD countries, such as the USA, Canada, Japan, Australia and Korea, see:
AMECO online European Commission
Questions
- If the overall number of unemployed people is falling why is the number of long-term unemployed rising?
- The current unemployment rate is 7.8%. But, what do we mean by the unemployment rate?
- Draw up a list of the problems that you think arise out of long-term unemployment.
- Use your list to draw up a series of potential policies to tackle these problems.
- Why do some economists think the current fall in unemployment is a ‘lull before the storm’? What impact might this have on the number of people long-term unemployed?
There has been talk for some time about the possibility of standing room on flights, but it is hardly surprising that this has been rejected by the Civil Aviation Authority. Not the safest option, you might say, nor the comfiest – certainly not for a long haul flight to the other side of the world! However, this could be coming closer to reality, as we see The Skyrider, which is a new saddle-style airplane designed by Avioninteriors. It has yet to be snapped up, but Ryanair could be top of the list with their plans for a new style of flying.
It may not be quite what you imagine – you don’t literally stand up in the stalls at the front of the aircraft. Passengers will have seats, but these seats give a completely new meaning to ‘upright seats’. Seats would be 23 inches apart (some 10 inches closer than we’re used to), but they would only be available for flights up to 3 hours. Despite the publicity, the design is yet to be approved. Ryanair believe that such a design would increase passenger capacity by some 40%. However, passengers remain rather skeptical, as many struggled to fit in to the seats when it was unveiled in New York.
Technological development is vital in any dynamic industry, but is this one step too far? One day, it could be a game of sardines when packing passengers into a plane!
New airline seat for Ryanair resembles a saddle Irish Central, Molly Muldoon (18/9/10)
New plane ‘saddle’ would pack in passengers Edmonton Journal (19/9/10)
Ryanair one step closer to fulfilling dream of getting more people on each plane Travel News, Natalie Cooper (16/9/10)
Budget airlines love bad new stories about how cramped their planes are Telegraph, Harry Mount (15/9/10)
Behold! The world’s most cramped airline seat Reuters, Charlie Sorrel (13/9/10)
Questions
- Is it a rational decision for a passenger to travel in a new upright seat?
- Is it a cost-effective strategy for Ryanair or any other airline to adopt? Explain (a) why it is, but also explain (b) why it may not be cost-effective.
- Using a diagram, illustrate the opportunity cost to an airline of providing more upright seats.
- If successive airlines adopt the new saddle style seats, what is likely to happen to the price of such seats?
- As passengers become aware of these cheaper seats, what is likely to happen to the market price? Illustrate this on a diagram.
- If Ryanair were the only airline to offer such seats, does this mean it would have a monopoly? Explain your answer.
The market for food in the UK is highly competitive. From dining in style to a simple take-away, one of the key words when it comes to dining seems to be choice. Competitive prices and high quality are on offer, which is largely due to the sheer number of restaurants available to consumers. However, consolidation seems to be on the menu.
Nando’s is a well known restaurant and a popular eating destination on UK and Irish high streets, with more than 230 restaurants. This chicken restaurant group has made a £30 million bid for Clapham House, the company behind the Gourmet Burger Kitchen chain with 53 branches. Clapham’s shareholders were advised to accept the deal and on the 17th September 2010, it is reported that a deal was reached with Nando’s Group Holdings and its private equity owner Capricorn Ventures International. The 74 pence per share deal was met with disappointment by some analysts, who felt that the company was under-valued, despite failed attempts by Clapham House’s Board to persuade Capricorn to raise the offer price or find an alternative bidder.
The restaurant industry has suffered from the recession and especially by the weak economic recovery, so perhaps lower valuations are to be expected. Nando’s said:
‘As macroeconomic weakness has persisted in the UK, the trading environment for restaurant businesses in the UK has been difficult. This is evidenced by Clapham House’s vaolatile weekly trading performance.’
Nando’s intend to invest significantly in Clapham Houses’ businesses to reinvigorate their previous competitor. This may be essential, given the expectation that conditions in the UK will remain fragile, with consumer confidence staying low, as well as a somewhat untimely rise in VAT in January next year, which is almost certain to have an adverse effect on the restaurant business.
This take-over deal is not the first in the restaurant industry and nor is it likely to be the last, as the UK economy remains in a vulnerable state. The following articles look at this and over takeovers.
Nando’s to buy Gourmet Burger Kitchen for £30m BBC News (17/9/10)
UK restaurants serve up £50m in takeover deals Management Today, Emma Haslett (17/9/10)
Nando’s swallows Gourmet Burger Daily Mirror News, Clinton Manning (18/9/10)
GBK team plots next move after Nandos deal Telegraph, Jonathan Sibun (18/9/10)
Nando’s to buy Real Greek chain for £30m Independent, Alistair Dawber (18/9/10)
Mithcells & Butlers and Nando’s to feast on rival restaurant chains Mail Online, Ben Laurance (17/9/10)
GBK owner Clapham agrees to Nando’s offer Reuters (17/9/10)
Questions
- What type of takeover is Nando’s purchase of Clapham House?
- Why has the weak macroeconomic environment adversely affected the restaurant industry? What might be the impact of next January’s rise in VAT?
- Will Nando’s takeover (or indeed any other takeover in the restaurant industry) allow the company to prosper from the weak economic climate?
- In which type of market structure would you place the restaurant industry in the UK? Explain the characteristics of the market structure you choose and why you have placed the restaurant industry in it.
- How was the finance for the deal raised by Nando’s Holdings Group? What other sources of finance are available to firms for this purpose? What are the (a) advantages and (b) disadvantages of each?
- What other takeovers have occurred recently in the restaurant industry? What types of takeovers are they?