Determining the market price of gold

As basic economic teachings state, the price of goods depends on their supply and demand. For each good or commodity, there are different factors that affect the supply and demand for that commodity. Gold is traded on markets worldwide, from New York to Chicago, from London to Paris, from Istanbul to Shanghai. Because gold is traded on markets around the world, it is traded 24 hours per day.

Supply and demand help determine the price

How is the price of gold determined? Price fluctuations for gold, as well as other precious metals, depend on how the supply of gold relates to the demand for gold. There are several factors that determine the demand for gold as well as its supply, according to IM Trading.

Gold Demand

The three factors that affect demand are:

·       - Investment demand

·       - Industrial demand

·       - Jewelry demand

Investment

Investment demand relates to those who trade quantities of gold. This typically occurs on markets and is sometimes in the form of Exchange Traded Funds (ETF). There are three types of investors, as reported by ITM Trading, “individual, institutional and official (government).” Each type of these investors acts differently and thus affects the demand for gold differently.

Industry

Gold is a valued industrial material. It is used in manufacturing electronics because it resists corrosion and it also conducts electricity well. Therefore, the demand, and thus the price, of gold can depend on industrial activity.

Jewelry

Gold is valued for is gorgeous aesthetic properties. Jewelers buy gold in bulk to design jewelry, which is then sold at high prices. Additionally, some families use gold as a means of storing value. They may hold on to gold jewelry pieces for a long time, passing wealth down from generation to generation. The demand for gold jewelry is sometimes also affected by those investing in gold pieces to hold on to them for their monetary value.

Gold Supply

Gold supply cannot be separated into categories like gold demand because it is mainly dependent on mines and recycled metal. Gold is a metal that can be hard to obtain because of the places where it is naturally found. This contributes to expensive mining costs. That, in turn, affects the amount of gold supplied. When only a small amount of gold is mined in a year, it may become more expensive because it is scarce and the demand might be more than the actual supply.

Final price

When the factors affecting gold supply and demand settle into place, factors are matched up, gold is traded and the price is determined.