Since its discovery in human civilization, gold has been a valuable commodity. As centuries have evolved, that socially constructed agreement has made gold a valuable precious metal which has seen a significant increase over the past fifty years.
But just what exactly goes into determining the price of gold? Several factors are relevant in determining the price of gold, including central banks, the value of the U.S. dollar, and worldwide supply and demand.
Central Banking in Gold Price Determination
The majority of gold lies within government vaults and central banks. Several countries around the world house their entire reserve in gold. In fact, the top countries buying gold in 2022 were Turkey, Uzbekistan, India, and Qatar. Most central banks around the world, however, are comprised of paper money currency as well as gold.
As these banks diversify their portfolios and move away from paper currency, they buy gold, thus generally driving up the price of gold. Though the United States abandoned the gold standard in 1971, other countries around the world saw this as the beginning of an uptick in gold purchasing for reserves.
The Fluctuating Value of the U.S. Dollar
The price value of gold itself is set by an electronic auction system called LBMA Gold Price, based out of London, England, and set in U.S. dollars. It publishes twice-daily pricing based on real-time auctions that run every 45 seconds and complies with global regulatory standards. Regional pricing of gold is also seen in countries such as China and India, and those regionally-based prices reflect their local market dynamics.
Globally, however, the gold price standard set by the LBMA Gold Price typically has an inversely-affected relationship to the value and strength of the U.S. dollar, the currency in which it is measured. When the value of the U.S. dollar is high, the gold standard tends to be slightly lower. However, when the U.S. dollar sees a decrease in value, gold standards tend to soar since the volatility of the U.S. dollar is hedged by the longstanding strength of the value of gold.
Due to its strength against a faltering U.S. dollar, gold has generally been seen as a hedge against inflation. As the prices of goods rise and the dollar falls, a weaker dollar can still buy more gold, thus you see the surge in the value of gold during periods of serious inflation.
Worldwide Gold Supply vs. Demand
Gold is a set commodity; it cannot be manmade and its quantity is finite. Though global gold mining has only dipped slightly, easily mined gold has already been sourced. This means that gold mining taking place now is more expensive due to the complexity of reaching unmined gold sources, the health hazards of getting to these complex mine locations, and of course, the environmental impact of mining.
Basic economics will tell you that as the demand for gold increases and its supply decreases, the overall value and price of gold will continue to rise over time. Though gold bullion makes up the largest amount of gold production for investment opportunities, demand for gold is also significant in the jewelry industry, as well as the technology industry for its use in micro and nanotechnology products.
As time goes on, the production of a finite precious metal will eventually decrease. This means that the value of gold will only continue to rise over time.
Gold as an Investment and Cash Opportunity
We don’t think this next section will surprise you, but we’re going to come right out and say it anyways. Gold is a great investment because its value is solid—and that’s not just a play on words!
You know that box of jewelry that came from your great-grandmother’s estate that you haven’t gotten around to going through yet? You just might want to check it out. Because gold doesn’t “go bad.” In fact, your great-grandfather may have purchased that solid gold chain necklace for your grandmother over 50 years ago when the dollar value of gold wasn’t that great. But gold doesn’t age, and gold is sold and measured by weight. The year it was purchased doesn’t even matter!
If you have gold jewelry or coins that you don’t need or want, check out the current value of gold per ounce. It’s crazy high! Loudoun Jewelers is Ashburn, Virginia’s #1 buyer of precious metals like gold and we would love to give you top dollar for your gold! Give us a call and we’d love to give you more information, or tell you how to sell your unwanted gold for cash today!