What Criteria Sets Gold Prices?

At the present time, gold it is one of the most highly traded assets on the global market. Prices are very hard to determine as gold trading goes on  all over the world twenty-four hours a day. The consequence of this fact is that the price of gold constantly fluctuates based upon the current activity in the marketplace. When transactions entail the purchase and selling of gold, the price of gold goes up and down according to market value. The price of gold is inherently set by supply and demand no matter the market.

There are three main things that will drive up the demand for gold. Thus, gold is highly desirable for several reasons.

The Demand for Investment

Individual, institutional and governmental demand for gold causes investment demand. This entails all sorts of gold which includes everything from small bullion coins to bars as well as large positions in the ETFs which means Exchange Traded Funds. In addition, central bank reserves are now moving away from storing paper currencies and relying increasingly on gold. As the nations of the world start storing their reserves in gold and buying more gold than they are selling, the price of gold rises.

The Industrial Demand

Gold is widely sought, because it has a wide range of industrial uses. Twelve percent of the worldwide gold demand can be attributed to medical and industrial needs. Precision electronics as well as GPS units and medical devices such as stents use gold. Increase in demand, which continues consistently as technology improves, causes price increases for gold.

The Demand For Jewelry

Through centuries of time, jewelry remains as the largest demand for gold. Fifty-four percent of the worldwide demand for gold is for jewelry design. In the global market, China, India and the United States all have the highest volume of consumption of gold to make jewelry in the world.

The Value Of The Dollar

The strength the value of the U.S. dollar lowers the price of gold, this is another determining factor. A weaker U.S. dollar value means a higher price for gold which is attributed to the fact that investors tend to gravitate toward gold when their faith in the dollar or the economy is on the decline. With a strong dollar value, investors will choose to trade in dollars rather than investing in gold.

Production Of Gold

A major factor that can affect prices is the production of gold. Since the turn of the century, gold mine production has been on a steady decline. Most of the surface gold has already been mined, and this leaves gold that is much harder and more costly to mine on a deeper level. Now it costs more to obtain less gold than before, and the price of gold has been on a consistent rise. With the discovery of new mining techniques, the process becomes less labor intensive, safer, and more cost effective. This allows change as in 2010, when gold production increased by three percent with  the operation of several new large scale mines.

Gold Prices

The world continues a perpetual love affair with gold and its market performance. Much of developed civilization uses it as a status symbol and essential ingredient in jewelry. Today gold prices have risen to such record highs on a continuous basis that global investors view gold as a stable bet for the future. However, with so much factored into the price of gold, it is important to keep in mind that all of these various factors must remain in balance for gold prices to rise. If just one or two of these divergent factors are not synchronized with the rest, gold prices can start to decline rendering that investment deficient of its previous value.

How Does Gold Investing Affect The Price?

If you are thinking about investing in gold or keeping part of your assets in gold, the price should not deter you. However, as the price of gold can be volatile you do not want the majority of your assets in gold. A good rule of thumb is anywhere between 10 to 30% for dedicated gold investors. Even investors who really believe in investing in gold typically do not invest more than 30% of their assets into gold. Others who just want to keep gold as a backup will keep closer to 10% or even less.  You should find investments that you believe are a good bet and will serve you well. Gold could be just one of many investments that will fund your retirement.

In choosing to invest in gold, it is critical to deal with a company that you can trust. You need to make sure you are paying fair market prices for your gold, and that it is being stored in a safe place at all times.