27. Why does the price of gold rise or fall?

Why is the price of gold rising or falling?

In order to be able to give a good prediction of what the gold price will do, it is important to know what actually influences the gold price. In this question, we will therefore discuss which factors determine the price of gold.

What is the gold price:
First of all, we will briefly discuss what the gold price is. By the It seems that there is one universal gold rate. Nothing could be further from the truth. There are different gold prices that are used by renowned global companies.

The gold price is usually expressed in the American weight unit troy ounce, which is 31.103 grams. The following rates are commonly used.

Kitco course;
This is the course that is adjusted every moment of the day to the current situation. This shows the prices in both dollars and euros. The big advantage of this course is that it is visible to everyone.
Reuters;
This rate is widely used by larger banks and smelters. This is a leading gold price with the disadvantage that this price is not visible to everyone.
London Gold Fixing;
This is a rate that is adjusted twice a day, at 10:30 and 15:00 (GMT). This rate has been around since 1919 and is determined by the five members of the London Gold Pool. It includes the following banks: Scotia-Mocatta, Barclays Capital, Deutsche Bank, HSBC and Société Generale.

Gold Price Factors:
There are many different factors that determine the price of gold. In essence, this is about the supply and demand of gold. Both the demand for physical gold and for 'gold on paper'. The different factors are described below.

demand for gold;
supply of gold;
economy;
exchange rate of the dollar;
political turmoil;
inflation (currency depreciation);
government.

- 1. Ask for gold;
  First of all, the price of gold is determined by the demand for gold. This is an old economic principle, the more demand there is for gold the higher the price will be. This demand is particularly influenced by the following parties:
     a. Asia; China and India have a great need for gold. In 2011, China overtook India in the largest buyer of gold. This demand for gold in Asia gives a strong boost to the price of gold.
     b. Central banks; Central banks have recently bought large amounts of gold. It seems that instead of the euro, they are opting for gold as an alternative to the dollar.
     c. Investors; Gold is also increasingly used in the investment portfolio. On the one hand, gold is seen as a safe investment, on the other hand, due to the rising price, gold is also invested in for returns.
- 2. Supply of gold;
  The gold price system consists of supply and demand. For decades, banks have been selling their gold. Of course, the more gold is offered, the more pressure the price will come under pressure. Because banks are currently buying more than they are selling, this is currently having an upward effect on the gold price. In addition to gold trading, there are two other factors that affect the supply of gold:
  a. Gold production and gold discoveries; Through the production of the gold, more gold can be put on the market. This is an intensive process, so this is not a major threat to the gold price. In addition, it is becoming increasingly difficult to mine gold, as the more simple mining sites have already been exhausted.
  b. Existing gold; In addition to the production of gold, there is a lot of gold in circulation. A large part of this is processed into jewelry. Due to the high gold price, more and more 'old' gold is being handed in, so that the gold present can also be traded again.
- 3. Economics; The economic situation is essential for the demand for gold. For a long period of time, gold has shown a negative correlation with the stock markets. Despite the fact that this negative correlation was released for a period in 2011, we can say that the more uncertainty there is about the economy, the more it seeks refuge in gold.
- 4. Dollar exchange rate; The price of gold is expressed in dollars. As a result, the dollar exchange rate obviously has a major influence on the gold rate. If the dollar strengthens, gold will be worth less in euros.
- 5. Political unrest; Gold is seen as a safe haven. A stable factor in times of turmoil. The trust that gold has created over the past centuries ensures that gold is sought refuge in times of political turmoil.
- 6. Inflation (currency depreciation); Rising inflation generally leads to an increasing demand for gold, as it is seen as stable in value.
- 7. Government; The government could exert a major influence on the price of gold.

At the moment, gold is VAT-free. If the government were to choose to apply a VAT rate to gold, this would have major consequences for the gold price. On the silver, there is already a visible interference from the government.

Finally, we cannot avoid mentioning that more and more critics are talking about a manipulation of the gold market by the larger players in the market.

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