How Gold Prices Are Determined
Gold prices, determined by a small group of trading firms, change daily. The prices are set twice each day in a process called “Gold Fixing.” But what does that mean, and how do they arrive at their pricing? More importantly, how do we arrive at our pricing for gold buying?
Gold’s prices are based on units of troy ounces, pennyweights and grams. There are 20 pennyweights to an ounce, and 1.555 grams to one pennyweight (abbreviated DWT). There are 30 grams per ounce. We can price out our gold offers using any of these units, by dividing our per-ounce price for gold by 20 or 30. You can see the day’s gold price (per ounce) on Kitco.com, which monitors gold and other precious metals.
Gold, like any other asset is extremely vulnerable to the socio-cultural events that affect the markets. However, gold is a commodity that is not meant purely for consumption – it is meant to be acquired thanks to its considerable long-term value.
Gold will never go bad, it won’t suddenly lose its value, it’s the ultimate non-perishable item. Nearly all the gold mined throughout history is still in existence today, and gold from the 8th century is no less valuable than gold mined in the 20th century.
The fluctuations of gold in the market are therefore determined by outside factors:
The Value of the dollar
To put it simply: When the dollar gets strong, the gold price goes down. When the dollar weakens, the price of gold goes up.
The Global Economic Climate
Because the shifting of currency value can cause uncertainty in the market, investors will turn to gold as a reliable, safe form of currency, causing a spike in gold prices, much like the recent rising prices we’ve seen in the markets.
Gold’s intrinsic value is due to its beauty and usefulness. The latter means that gold is prized for its physical and chemical properties, making it useful in medical, dental, engineering and industrial purposes. Gold’s beauty is best exemplified by its prominence in jewelry, which accounts for 2/3rds of the annual gold demand.
Central Bank Reserves
Central banks use gold as reserves for insurance against their clients’ money. These banks, therefore, hold a majority of the world’s gold supply. Because these banks have such an enormous amount of the world’s wealth stored in their reserves, they play a large role in determining the price of gold. Essentially, the price of gold around the world fluctuates with large, central banks’ size of reserves.
Fear and Uncertainty
The final factor that influences gold prices is fear of uncertainty. In times of national emergency, gold often becomes highly valuable as people fear for the value of their currency, assets, and the stability of their country.
Once these factors are taken into account, an organization called the London Gold Pool meet twice daily to do a process called Gold Fixing. This group is made up of 5 trading firms who make up the London bullion market:
Today’s gold prices can be readily found with a simple internet search. We monitor Kitco’s gold prices to decide how much we’ll pay for scrap gold, gold coins, and gold jewelry. It’s how we keep our offers competitive, and it’s how you can easily check if it’s a good time to sell old gold or scrap. If gold is down and you aren’t in a hurry, you can wait until it rises again. Likewise, you can strike while gold is hot hot hot and make a few extra hundred dollars on pieces you don’t wear anymore.