Understanding How Gold Price is Determined 

Centuries have gone by, and yet, gold remains to be one of the most prized elements in history. The use of gold has now extended to medicine, utility, and electronics.

With the way gold has established its worth, one might be wondering how the industry determines its monetary value. People and companies alike wonder how the gold price per ounce is calculated. To better understand the process, one must be familiar with the two types of pricing models: future price and spot price.

The Gold Spot Price

The gold spot price determines the value of gold, depending on the current market and the amount expected when immediately delivered after purchase. Additionally, the spot price decides the average of the net value of all the rates fixed at the gold futures price. More often than not, the spot price is less than the futures price except when there is extraordinary demand in the acquisition of gold.

The Gold Futures Price

The gold futures price is the price agreed by participants on the value of the gold upon its delivery set at a future date. To determine futures price, you need to include the spot price, the prediction of future behavior of the supply and demand of gold, and the transportation and storing costs.

What affects the price of gold?

Although many aspects determine the price of gold, there are ultimately three aspects that majorly affect how much the gold price per ounce is. These are the following factors:

Supply and Demand

All prices, not just that of gold, are affected by supply and demand. This economic principle is the foundation of pricing commodities.

It’s a fundamental principle that when there is high demand and low supply, generally, the price will be higher. On the other hand, when there are extra supplies and less demand, the price will decrease. The amount of gold is erratic and limited, which is why they have a consistently high price. 

Currency Value

Gold trading impacts the international market, which is why the currency power of the importer and exporter would generally affect the price of gold. 

Market Conditions

Of course, market conditions will have a significant influence in determining the price of gold. Inflation and depreciation of commodities will also affect how much a bar of gold is valued. The market condition links with the determination of the currency power of the importer and exporter.

There are also other determiners of gold prices such as:

  • Cost of moving the gold from one place to another
  • Production cost
  • Interest rates
  • Future Gold value prediction
  • Dollar rates
  • The Central Bank’s activities which include the cost of printing money

Gold has remained to be a powerful element globally. It has been used to determine the health of a nation’s economy. Many people in business also invest in gold, which they think can help in times of recession.

Without a doubt, the gold craze is not expected to dwindle any time sooner. Many have considered gold to be a smart investment for when inflation might happen. It’s safe to say then that gold will continue to be of great value for the next decades to come.

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