What determines the price of gold?
Gold is one of the most sought after precious metals that has been used in coinage and jewelry before recorded history.
It is also one of the oldest forms of investment, given it has the ability to hedge against inflation or other economic disruptions.
Of all precious metals, gold is the most popular investment option and people are often lured into investing in gold – given that its value has surged over the past few decades.
However, what drives the price of gold?
The “official” price of gold is set twice a day by the Gold Fixing, also known as the Gold Fix or London Gold Fixing.
It is a twice-daily telephone meeting (at 10:30 GMT and 15:00 GMT) of representatives from five bullion-trading firms of the London bullion market.
The price that the members of the London Gold Pool set is the current benchmark used to price gold and gold products all over the world.
The group sets a price on gold to settle contracts between members of the London bullion market – essentially this is influenced by supply and demand.
However, there are other factors – aside from supply and demand – that greatly influence the price of gold.
In times of economic uncertainty, war, or political instability, people begin to fear that the value of paper currency will seriously decline. As a result, people view gold as a stable storage of monetary value – an asset that won’t greatly depreciate.
The price of gold is also influenced by decisions that central banks make concerning interest rates. A general rule of thumb is that as interest rates rise the price of gold rises too.