Case Study

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Currently the instability of many economies and their markets, many political and cultural situations, the vast fluctuation on assets prices and the uncertainty that rises among many investors has made investing a very risky activity, even more now than in past times, this because of the massive amountsof money that this specific kind of trading manages. The seek for stable and at the same time profitable assets in the stock market has currently lead to a common denominator, gold, it's price is currently around 1,662 US dollars per traded ounce1, for the past years, the price of this mineral has been rising and the trend is that it will keep adding value2.
But why is this specific metalpresenting such behavior, especially when is a mineral with such limited uses in the industry, besides the fact that it doesn’t gain any interests or pay dividends at all? Well, this behavior is explained by a single word, stability, or at least the sense of it. The market behavior over this metal in the present time and over the past decade has shown a tendency to the raise, from $255 in August 1999 toover $1800 in the present day without having mayor downturns or price drops, this is probably the main reason for the boom on the demand of this asset, since its price is so stable and has an increase tendency, investor are attracted to direct resources to it because they are confident that their money is placed in a safe and profitable commodity that is highly unlikely to report losses3.Additionally, this phenomenon could be explained by 2 possible scenarios that could completely explain the boom over the gold market. Either gold is being undervalued even at the high price it holds or an investor’s herd behavior caused the gold market to boom3. Gold could be facing undervalue and experimenting a rise in search for the correct price for this asset since this mineral is mainly used infine jewelry and other expensive goods. On the other hand the herd behavior is another possible scenario, the stability of the gold market, compared to the uncertainty and high risks of other markets, created an environment of trust and confidence on this asset, which lead to an increment on the investment, to the point where its demand is highly over the current supply available, therefore sincethe market is trying to adjust itself to the equilibrium prices continue to increase until supply and demand equilibrate. The lack of enough mineral to satisfy the world demand has led to a continuous search for territories with vast amounts of it that remain unexploited.
One of these countries is Colombia, a country with a diverse society with a mix of different races and religions. There areapproximately 46.500.000 habitants4, out of which around 1.672.000 are illiterate5. The Colombian government has highly improved education, but it’s still facing the major challenges like FARC, drug trafficking6, injustice, and natural disasters that have displaced a significant part of the population. Previous and current governments have taken multiple measures to confront these problems, especiallythe FARC-EP and the drug trafficking issues that have slowed down the country’s development and progress. To counter underdevelopment, President Juan Manuel Santos has sought multiple FTA’s with Latin American and Asian countries, as well as the US, EU and Canada that in addition to the government’s efforts to increase security in their territory, this has led to a remarkable economic growth inthe past years. The country’s GDP increased 5.7% in 2011 and has maintained a high growth rate for the past years, averaging between 4-5%7; inflation rates have been decreasing thanks to the Central Bank’s monetary policies, remaining in a low 3.7% in 20118. One of Colombia’s major challenges right now is generating employment; it currently possesses one of the highest unemployment rates in Latin...