If you’re a gold investor, you’ll want to keep up with fluctuations in the market to see how much is gold on nearly a daily basis.
Although the gold market has been climbing steadily upward over the past four years, sudden dips and spikes in the price can and do happen. Recognizing a price dip or spike can create many opportunities for investors in gold, so it pays to keep a careful watch on gold.
As of this writing, gold hovers around a price of $1,236 per ounce. Prices have been pushed upward recently by bad news concerning the state of the U.S. economy, and the possibility of a double-dip recession.
There are a wide variety of factors that play into the price of gold. Understanding them will help you better predict swings in the gold market.
The London fix
Five bankers in London set gold prices for their exchanges twice daily. While the price they set doesn’t set the price of gold for the world market, it is a pretty good indicator of how things are going.
The meetings are held via telephone, and the five bankers are members of the five bullion-trading firms on the London gold bullion market.
Simple economics
Like any other commodity, supply and demand plays a big role in the price of gold. However, unlike many other commodities, hoarding and liquidation of gold stores plays a huge role in the price of gold. This is because just about all of the gold ever mined by man remains accessible and can be sold or held tightly at anytime. It’s estimated that about 158,000 tons of gold exist.
Central banking policy
Policies by the central banks of nations play a big role in the price of gold. For example, the Washington Agreement on Gold, which limited gold sales by some of the world’s leading industrial countries to 500 tons per year, is largely credited with keeping prices high. Recent buy-ins by emerging powers such as China and India are also helping to prop up the price of gold.
Banking and money
When currency and banks struggle, gold increases in value. Because gold is viewed as a solid asset which will always be tradeable for the basic necessities, gold gains ground when the traditional economy, that of paper currency and banks appears weak.
Because so many put their faith in gold rather than banks, in the 1930s bans were enacted on gold ownership by U.S. citizens in order to force them back to the banks.
By understanding these and other factors, you can get a better grip on how much is gold and why.
