A Brief Overview of the Gold Price Today

If you're new to gold investing you may be wondering what factors influence the gold price today. Here's a quick look.

Goldprice

Gold is the best-known and most popular precious metal, and it’s not hard to see why. Beyond being a key material for jewelry, investors around the world use it as a store of wealth, and many believe it’s superior to any and all paper currencies.

Yet despite its popularity, the gold price is currently languishing well below its 2011 peak of nearly $1,900 per ounce. It took a steep dive midway through 2013, reaching about the $1,250 mark, and then dropped below $1,200 at the start of 2014. Since then, it’s continued to fall, and in November 2015 was trading just below $1,100.

The below chart from Kitco provides a good outline of gold’s price activity over the last five years. Data covers the period between November 25, 2010 and November 24, 2015.

GOLD 5Y

Image courtesy of Kitco.

Gold price today: Supply and demand

Many initially expected the the lower gold price to lead to mine closures; however, as yet most gold producers have opted to cut costs rather than shut down their operations entirely.

Miners have taken diverse approaches to making such cost reductions, including lowering salaries and reducing employees. But perhaps the most common approach has been to cut down on exploration — many gold miners are directing all their money at their existing operations rather than searching for gold elsewhere. While that’s not a problem just yet, many market watchers believe that ultimately gold may be in short supply.

For the moment, however, there’s no shortage of gold. In terms of where it’s being produced, China, Australia and Russia were the three top producers in 2014. Respectively, they put out 450, 270 and 245 MT of the yellow metal.

China is also one of the world’s top consumers of gold, and in 2014 took in 813.6 MT. That’s certainly a sizeable amount, but it’s actually down a whopping 38 percent from the 2013 number. According to Reuters, Chinese gold consumption was particularly high in 2013 because of the metal’s big drop in the latter half of the year.

India is also a major market for gold, and in 2014 consumed 842.7 MT of the metal. That’s the most taken in by any country, though like China, India saw a drop in gold consumption from 2013 to 2014. The title of world’s largest gold consumer is often a toss up between India and China, but in 2015 the expectation is that India will remain on top.

As a side note on supply and demand, investors should be aware that most of the gold ever mined still exists and is accessible — for example, as jewelry or bullion. In contrast, many other metals come off the market when they are used. That means that the gold space is also affected by saving and disposal tactics, and not just by simple supply and demand.

Gold price today: Economics and manipulation

While supply and demand are key factors in the gold market, it’s important for investors entering and operating in the space to be aware that they’re not the only things that can have an impact on the metal. 

In particular, global economics can have a drastic effect on gold. Put simply, gold earns no interest, and thus tends to fare better when interest rates are lower; conversely, when interest rates are higher, it becomes less desirable as an investment.

That relationship has been particularly visible in 2015. Expectations have been running high that the US Federal Reserve will raise interest rates after keeping them low for the better part of a decade. While that hasn’t happened yet, many believe that the central bank will take that step at its next meeting, which is scheduled for December 15 to 16.

Gold’s relationship with global economics can also be seen when looking at this past summer’s Black Monday selloff in China. The yellow metal took a big hit in the aftermath of the event.

Price manipulation is also a concern in the gold space, but luckily, it’s one that the world’s gold market participants are keen to address. Indeed, early in 2015, the long-running London gold fix was replaced by the LBMA gold price in a bid to increase gold price transparency. Though the process still involves a variety of banks collaborating to set the gold price, the system is now electronic. Recently, some market watchers were pleased to see a Chinese bank gain a place on the roster.

Gold price today: The future

While the gold price may be lower than investors would like, it’s clear that interest in the metal remains strong around the world. Those interested in investing in gold would do well to remember that like most markets, the gold sector is cyclical, meaning that what goes down must eventually rise again.

Our 2016 gold price outlook will include a more detailed view of the future for gold — stay tuned!

 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

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