Gold Value in Gold Market
Gold value is very important especially if one is into gold investment. The benchmark for the value of gold is called London Gold Fixing. This is a twice-daily telephone communication among representatives of five bullion-trading firms.
Gold value is also determined by spot price which is based on the gold-trading markets all over the world as they open and closes in the day.
Factors Influencing Gold Value
The supply and demand factor plays a huge role in gold investment just like any other investments. Hoarding and dis-hoarding also plays vital role in determining gold value because all the golds ever produced still exists even to this day and may be sold to the market for the right price.
Since there are more above-ground hoarded gold than what is produced annually, changes in sentiment is more critical than changes in production in gold investment.
Central banks and International Monetary Fund also play vital role in determining the gold value because they account for 19% of the total hoarded gold or above-ground gold which they kept as official gold reserves of the country.
Bank failures are important factor in gold value because a bank run could require drastic changes in gold reserves of the bank. This is evident when during the Depression in the 1930s President Roosevelt prohibited US citizens to hold gold.
Inflation is another factor that affects gold value. Paper currencies could be inflated that is why people buy assets in lieu of paper currencies most notably gold. The value of gold could rise during inflation.
Low or negative real interest rates occur when interest rates are very low. Investors protect their investments by buying assets that are not subject to inflation or low interest rates such as gold. The demand for gold increases thus increasing gold value.
War, invasion, looting, crisis are also factors that affect gold value. During these times, the currency may be deemed worthless. They again turn to assets that do not rely on the external factors such as gold. These would effectively increase the demand for gold.
Production is also another factor because annual production of gold could determine the supply. The last few years saw an annual gold production of about 2,500 tonnes. But the total production including scrap sales of 850 tonnes and official gold sales of 500 tonnes would total 3,500 tonnes.
Demand for gold is also a factor because every year 3,000 tonnes go to jewelry makers and another 500 tonnes to investors.
Supply and demand forces affect gold value because the gold demand increased by 29% in 2005 alone. This is due to the launch of gold exchange-traded fund.
The Gold Anti-trust Action Committee was formed in January 1999 to go after illegal control of price and supply of gold.
