It’s not news that gold has gone through a massive shift in demand. However, nothing could have prepared the world for the hike in gold prices we have experienced recently.

While history has done a good job of showing us that the price of gold is bound to appreciate and depreciate drastically over time, nothing comes close to what the current gold market has been through.

At the turn of the century in the year 2001, the price of gold per ounce stood at $265. Flash forward ten years later to September 2011, these prices reached new levels as they moved up to a record breaking high price of $1,920. Though gold prices have since experienced a price slash to around $1,600, these rates are still quite high considering where they were just a decade ago.

Factors Affecting the Price of Gold

Gold is without a doubt one of the major indicators of the current economic state. Being a precious commodity, the prices of gold are dominated by various factors such as:

  • The US dollar
  • Supply and demand
  • Global economics
  • Central bank reserves
  • Production

The US dollar has been known to be a key player in determining the price of gold. As the dollar weakened, more and more investors ditched the currency for gold in order to put a hedge around their assets.

This is not a new trend! And when the dollar is not doing too well, people are skeptical about investing it: this shifts demand to gold, hence increasing price. Like other commodities, supply and demand also plays a significant role in determining price, and gold is not exempted. As we have mentioned, the demand for gold has seen an increase due the weakening of the dollar, however it is only one of the many factors that has led to increased demand.

Consumption Theory

Today, about 80% of the world’s gold goes to the jewelry sector. Looking at historical trends, India has been the World’s leading consumer of gold. However because of their slow economic growth and fluctuating currency, India’s role as a leading consumer is changing. That said; one still cannot dismiss India, seeing that in 2009, their consumption dropped 32% but was quick to bounce back to 75% the following year.

China, on the other hand, has emerged to become another key player: they are taking up an increased share of the gold produced. Central bank reserves have monetary policies which play an enormous role in affecting the price of gold as ingot reserves are kept as an inflation hedge.

Gold mining is perhaps the most responsible when it comes the price factor. Production costs have increased over the years and this has led to a decrease in production of gold. As the population grows demand also increases, but, with increasing oil prices, constant strikes by miners and pitiable political conditions in gold mining countries, this production decrease in mining is without a doubt straining the chains of supply and demand.

The fact that people are hoarding the precious commodity strains the situation further.

Gold Fixing

Gold fixing is the process used to determine the current price of gold. If you are wondering how and who comes up with the pricing, below is some information you may find useful:

  • Gold fixing is carried out twice a day
  • The three main currencies are the US dollar, Pound Sterling and the Euro
  • Gold fixing is conducted over a devoted telephone line
  • There are five participants responsible for gold fixing

Fixing the price of gold is conducted by five London Bullion Market Association members and this is done over a dedicated telephone line. It is carried out precisely at 10.30 am GMT and, then again at 3 pm GMT. Three specific currencies are involved in fixing the price of gold – and these are the US dollar, Pound Sterling and the Euro. Gold fixing was initiated in 1919 and since then, it has been the pricing standard for gold prices in the global gold market.

The Future For Gold Prices

Gold prices will not remain this high for long! This year the world will begin experiencing a reprieve. Various factors are affecting this price drop and the US economy is one of them. As the US economy strengthens, investors will begin to offload their gold and return to investing using the US dollar.

That means demand is going to fall, as supply increases hence it should push the prices down. If you are looking for a good time to sell, there is no time like the present since the prices are already up. The strengthening US economy, decreasing demand and increased supply is a sure indicator of better days to come, thus demand will begin to fall as supply increases, which depicts the prices being pushed down.

If one is interested in selling gold, it is in your best interest now since the price is high.