Gold Market , Market of Gold
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Gold Market has a completely different significance in every economy as the metal gold is treated both as a commodity and as a monetary asset.
Gold Market has a completely different significance in every economy as the metal gold is treated both as a commodity and as a monetary asset.
The total stock of gold in the world can be divided into two parts; the stock of gold that is lying in the mines and the above ground stock of gold. The above ground stock of gold can be mobilized and exchanged between parties. But the total stock of gold in the world remains same. For this indestructible nature of gold, price of gold is less volatile compared to that of other major commodities. And for this very reason people all over the world are so much interested to invest in Gold Market.
The total above ground stock of gold is held by the Central Banks of every country, Government Bodies and by the individual persons.
Demand and Supply of Gold in the Gold Market
The total demand for gold comprises of gold demand for jewelry market, industrial demand for gold and gold demand for investment. The demand for gold to make jewelry and ornaments is largest in amount among the three types of demand. The industrial demand for gold is dominated by demand of gold in electronics industries, in dentistry and for manufacture of decorative pieces. The gold demand for investment includes demand for gold bars, gold coins, gold medals, investment demand for exchange traded gold funds and other gold related products.
The total supply of gold comes from the mine production of gold and recycled gold from the above ground gold stock. The source of this recycled gold is actually gold from jewelry market and the gold sold by the Central Banks.
Prices of Gold in the Gold Market
The common standard for the price of gold is known as “London Gold Fixing”. The price is fixed by a twice-daily meeting of representatives from the five bullion trading funds. These five trading funds are Deutsche Bank, Societe Generale, HSBC, Scotia Mocatta and Barclays Capital. Any other fund; interested to participate in the fix are able to do that only through any of these five trading funds. Other than this system, gold trading is also done on the basis of intra-day spot price, which is derived from gold trading markets around the world throughout the day.
Factors that influence Demand of gold, Price of Gold and transactions in the Gold Market are following:
- Inflation- When inflation rate is high in the economy, people want to protect their saving by purchasing some liquid and physical assets; value of which is not linked to government activities in any ways.
- Bank Failures- Bank failures or fear of bank failure can cause the people to purchase more gold rather than holding money in currency notes.
- Low level of Interest Rates- When the interest rates are low, people want to protect the value of their capital by purchasing gold.
- War or any Crisis- At times of war or any other crisis, demand for gold rises as people think other assets can be perished and currency may lose value.
Find out more about Gold Commodities Investments and How Gold affects Forex.
