If you’re new to investing in gold, you may be wondering what factors influence the gold price today. Here’s a quick look.
Gold is the best-known and most popular of the precious metals, and it’s not hard to see why.
Beyond being a key material for jewelry, investors around the world buy gold as a store of wealth, and many believe it’s superior to paper currency as it is seen as legal tender. Storing wealth with a sense of stability is a popular reason for investing in gold.
Over the last decade, the gold price has seen both peaks and troughs. It rose as high as around US$1,920 per ounce in late 2011, but took a steep dive midway through 2013, slipping to about US$1,220; it then remained between US$1,100 and US$1,300 from 2014 to early 2019.
However, a softer US dollar, geopolitical issues and a slowdown in economic growth in H2 2019 pushed gold above US$1,500 that year. The yellow metal’s impressive pace has continued in 2020, driven largely by economic uncertainty brought on by the global coronavirus crisis — it took out its 2011 high in July, and in August broke the US$2,000 level, leaving market watchers wondering what milestone is next.
Predicting the gold outlook is difficult, but there are definitely factors to keep in mind. Read on to get an idea of what drives the gold price, from supply and demand to economics and manipulation.
This article continues below the Gold Investing Table of Contents.
Gold Investing Table of Contents
The articles listed below provide an overview of investing in gold from Gold Investing News.
Start Investing in Gold
- 5 Basic Facts About Gold
- A Guide to Physical Gold as an Investment
- Do You Need Gold for Retirement?
- 3 Ways to Invest in Gold for Retirement
- Should You Invest in Gold Stocks or Gold Bullion?
- How to Use Gold Investments as a Hedge
- Follow the Money: A Guide to Gold Technical Analysis
- Gold Stocks and Gold Production: A Beginner’s Guide
- Best Gold Stocks of 2020 on the TSX
- Best Junior Gold Stocks of 2020 on the TSXV
- 4 Gold Stocks to Watch in 2020
- Gold Mining Stocks to Buy in 2019
- 10 Top Gold-mining Companies
- World’s 10 Largest Gold Mines by Production
- Largest Producers of Gold by Country
- 7 Expert Tips Mining Investors Need to Follow
- VIDEO — 5 Mining Trends You Might be Missing
- An Overview of Epithermal Gold Deposits
Gold Around the World
- Mining Gold in Africa: A Look at Ghana, Mali and Burkina Faso
- Ghana Gold Mining and Exploration
- Gold Mining in South Africa
- Indicator and Pathfinders in Gold Exploration
- Introduction to Remote Sensing in Mineral Exploration
- Satellite Imagery and Gold Exploration
- Alluvial Mining: Gold, Diamonds and Platinum
- Gold Grain Morphology: Valuable Method in Gold Exploration
- Historical Changes in Gold Prices
- A Closer Look at Gold’s Price Movements
- The History of the Gold Standard
- Will Trump Bring Back the Gold Standard?
- Is Donald Trump Good for the Gold Price?
- The Effect of Gold on Currencies
- Gold Investing News homepage for the latest news on Gold Investing
Gold Free Reports
- Start Here: Investing in Gold
- 2020 Gold Stocks and Investment Report
- Gold and the Stock Bubble
- How to Profit from the 2019 Gold Rush
Gold investing: Supply and demand
When the gold price began to fall in 2013, market watchers expected some mine production to come off the market and foresaw a reduction in gold dealers; however, most gold producers opted to lower salaries and cut employees rather than reduce output from their assets. Many producing gold companies also chose to reduce the amount of cash they put into exploration for financial reasons, opting to keep their existing operations afloat and their net assets stable.
In 2016, the tide began to turn for gold investing. As mentioned, prices recovered somewhat that year, even rising above US$1,300 as demand for the precious metal ticked up. However, times were still tough for exploration — in fact, even four years later the consensus is that not enough money is being spent on finding new gold deposits, hindering gold investment. Gold mine production has been flat for the last five years, at around 3,200 to 3,300 metric tons (MT) each year.
Most gold is produced in China, with Australia and Russia being the second and third top producers. Respectively, they put out 420 MT, 330 MT and 310 MT of the yellow metal in 2019.
Looking at consumption in 2019, gold demand dropped by 1 percent year-on-year in 2019 to a total of 4,355.7 tonnes. Exchange-traded fund (ETF) inflows, such as gold futures contracts, hit a record year-end high in holdings at 2,885.5 tonnes. However, gold bar and gold coin demand saw a significant drop in H2 2019, contributing to the 1 percent decline in overall gold demand.
China and India hold major physical gold-buying power and the title of world’s largest gold consumer is often a toss up between the two. The yellow metal also continues to be popular in mutual funds and mining stocks, and central bank buying has risen to a level not seen since 2013. In 2019, central banks were net buyers of gold for the 10th year in a row.
As a side note on supply and demand in terms of gold-mining stocks, investors should be aware that most of the pure gold ever mined still exists and is accessible — for example, as jewelry or gold bullion. In contrast, many other metals come off the market when they are used. That means that gold-mining companies and the gold space as a whole are also affected by saving and disposal tactics, and not just by simple supply and demand.
Gold investing: Economics and manipulation
While supply and demand are key factors in the gold market, it’s important for investors who want to buy and sell 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 to buy.
Interestingly, that relationship has been less visible in recent years. 2018 proved to be a year when interest rate hikes actually supported the price of gold, and when the US Federal Reserve made the decision to halt interest rate hikes for 2019, the gold price increased.
Gold investing is also often favored by investors as a safe haven or inflation hedge in times of economic downturns and political turmoil. There are countless instances of people who invest in the precious metals market and use gold as a hedge in times of uncertainty — for example, gold and gold stocks tend to get a bump every time the trade war between the US and China intensifies.
Price manipulation within the stock market is also a concern in the gold space as it can have a negative effect on any given transaction. Luckily, this issue is 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.
Gold investing: The future
With the global COVID-19 crisis sending the gold price to never-before-seen highs, it’s clear that interest in buying and selling the metal remains strong around the world. Those keen on gold investing would do well to remember that like most markets, the gold sector is cyclical, meaning that there is volatility.
The Investing News Network’s 2020 gold price outlook includes a more detailed view of the future for gold and gold investing. You can also check out our latest quarterly update on gold by clicking here.
This is an updated version of an article originally published by the Investing News Network in 2015.
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Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.