How is the gold price formed?

Global InterGold

 

Everyone who is interested in buying gold should know how its price is formed. Let’s take a look at what influences this process and how the cost of an ounce is set.

 

The key factors affecting the pricing

 

The US dollar fluctuations

The American currency, like gold, is an object for investments. When the dollar rate is falling, both ordinary people and professional investors put money into gold more actively in order to avoid losses. Increased investment demand for the yellow metal contributes to the growth of its cost.

 

In the chart: the correlation between the US dollar index to a number of the world’s top currencies (blue) and the cost of gold (yellow) over the past ten years. Every time the US currency weakens, the noble metal takes on new heights.

 

Volumes of production and supply of gold to the market

The amount of gold in nature is very limited, which makes this metal precious. In recent years, there is a growing concern that this commodity may become scarce as it gets more difficult to mine gold. Easily accessible deposits are almost depleted, while the development of new ones requires more sophisticated and expensive technologies. Meanwhile, additional costs in the mining and production of the good usually lead to an increase in its price.

 

Behavior of central banks

Many countries procure gold as a reserve asset to ensure protection from the crisis, to strengthen economies and enhance confidence in their own national currency. The increase in demand on the part of central banks that buy the yellow metal in tons accelerates the growth of its cost.

 

In the chart: until 2010, central banks were predominantly sellers of gold, as evidenced by the figures highlighted in dark green. But due to the global crisis, the situation changed, and countries began to massively stock up on the precious metal, hence contributing to the growth of its price.

 

Economic, political and social upheavals

Gold is a proven defensive asset, the value of which is growing in difficult times. Both large institutions and ordinary people transfer their savings into the noble metal out of a desire to protect themselves from losses, and then the growth in demand for gold drives its price up. The year 2020 can serve as an example, given that in the midst of the COVID-19 pandemic an ounce rose in price to a record high of $2,067.

 

Price determination

The London Bullion Market Association (LBMA) holds an auction twice a day to establish the current benchmark price of gold. The procedure takes place at 10:30 and 15:00 London time.

The largest banks in the world take part in the auction. They make anonymous bids to buy or sell a certain amount of gold. The electronic system calculates the difference between supply and demand and, based on the data obtained, adjusts the price of the noble metal.

The thus approved cost of a troy ounce serves as a reference point for all participants of the gold market.

 

As of May 3, 2021, the price of an ounce of gold is $1,782.

 

The rate of the precious metal never stays the same, it constantly fluctuates while showing an upward trend in the long term. Therefore, when buying investment gold, it is beneficial to use the GIG-OS Fixing project.

Fix the cost of 100-gram bars and pay for the order later, at a convenient time for you. Pay in parts and each time choose the amount of the next contribution yourself. This saves you the trouble of tensely monitoring the situation on the gold market, worrying about possible risks of overpayment and saving up money to pay for the entire bar at once.

 

Take an innovative approach to buying gold!

 

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Published: 03.05.2021
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