This guide centers on what makes gold valuable as a commodity. We explain what spot gold prices are, and what drives its price.
Read on to find out about the main uses of gold and the surprising store where more than 20 million tons of gold can be found.
If you are looking for information about trading and investing in gold, see our full guide, or check out popular options available in such as:
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Between 53.00%-89.00% of retail investor accounts lose money when trading CFDs.
Why is Gold Valuable?
Gold has occupied a unique role in the financial systems of cultures worldwide. Unlike other precious metals like silver, platinum, and palladium, gold has value far beyond its applications in industry.
While business sectors including dentistry, electronics, and jewelry use gold in their products, there is simply not enough commercial demand to explain the very high price markets assign to the yellow metal.
However, the high price is no mystery.
Since the beginning of civilization, humankind has viewed gold as a proxy for money and a safe-haven asset. This reality has made it one of the most fascinating and misunderstood commodities.
What Are Spot Gold Prices?
Gold pricing can be found on most trading platforms by its abbreviation: XAU.
The terms spot gold and gold spot price refer to the current price at which you can purchase or sell an ounce of physical gold.
What Drives the Price of Gold?
According to the World Gold Council, the annual volume of gold production has tripled each year since the early 1970s, while the amount of gold purchased each year has quadrupled.
The price of gold has risen from around $43 per ounce in 1972, the first year that private ownership of gold became legal again, to its price of over $1,500 today.
There are several common factors that typically move the price of gold:
- Supply and demand
- Central bank policies
- Economic data
- Demand for financial instruments that invest in gold
Gold Supply and Demand
As with any commodity, the balance between output and market demand determines price levels. When supply levels diminish, prices tend to go up.
Factors such as political unrest in countries with large gold mining projects or increases in mining input costs (such as the price of oil) can constrain supply.
On the other hand, discoveries of new gold deposits or declines in input costs can increase supply.
The Relationship Between Gold Price And Supply
Ironically, one factor that consistently affects supply is the price of gold itself:
- When gold prices increase, mining gold becomes more profitable, so more supply comes on to the market.
- The opposite happens when prices decline.
- Similarly, changes in demand from industry, traders, central banks, or sovereign wealth funds can move gold prices.
Central Bank Policies Affecting Gold
The actions of central banks can have a big impact on gold prices in two ways.
First, central banks make decisions to contract or grow the money supply in their countries. These decisions ultimately drive an increase in gold trading since fiat currencies (eg, US dollar and euro) compete with gold as a store of value and a form of money.
Second, central banks hold large gold reserves. For example, the New York Federal Reserve Vault holds over 6,000 tons of gold — over 3% of all the gold in the world and more than a third more than Fort Knox.
As a result, their decision to accumulate or sell reserves can move the gold market.
Economic Data Driving Gold Prices
Economic data, particularly in the United States, can impact gold prices.
Because the US dollar is generally viewed as the world’s reserve currency, weak employment or GDP numbers, for example, often result in a weaker dollar against other currencies.
Typically, gold benefits from US dollar weakness because it is seen as a competing form of money.
Demand for Financial Instruments That Include Gold
Trading instruments such as exchange-traded funds (ETFs) represent an increasingly important segment of gold trading.
Most gold ETFs purchase physical gold and store it for their traders, although some ETFs trade in gold futures, options, or other gold derivative products.
Demand for these instruments can impact gold prices.
Where Does Gold Come From?
Miners extract gold from the ground on every continent except Antarctica.
The supply of above-ground gold is limited, so gold deposits are difficult to find. Plus, extracting the metal from gold mines is an expensive and time-consuming endeavor.
How Much Gold Has Ever Been Mined?
Interestingly, gold isn’t just in the ground.
Ocean waters hold approximately 20 million tons of gold – which amounts to more than has ever mined. However, each liter of seawater only contains about 13 billionths of a gram of gold. Yes, billionths.
There is no getting away from the fact that gold is rare. According to the World Gold Council, the total supply of gold in the world is around 197,576 metric tons – more than the orbiter of NASA’s Space Shuttle.
If all of the gold that’s ever been mined were to be combined into one large cube, it would measure only 21 meters square. That’s a bit less than the length of a tennis court or five stories on each side.
For many years, South Africa was the dominant gold producer in the world.
What Are the Main Uses of Gold Bullions?
After it is mined, refiners process gold into bars, coins, or ingots called bullion to sell them.
Buyers then transform these gold bars into items like coins, jewelry, and electronic components. They may also store gold bars for traders.
As with supply, gold market demand is also international and includes a variety of different industries and traders.
Fast-growing Asian economies, including India and China, have increased their demand for gold in recent years.
Main Uses Of Gold
Four groups comprise the major demand components for gold:
|Use of Gold||Description|
|Jewelry||This industry fabricates gold into watches, rings, earrings and necklaces among other items. Jewelry manufacturers have been a mainstay of gold demand for centuries.|
|Technology||Because gold conducts electricity and does not tarnish, many industries use gold in their products. Connectors, switches and relay contacts on cell phones contain gold, for example, as do CPU memory chips and motherboards. Gold is also used in salts to treat arthritis patients and on space vehicles to reflect radiation.|
|Private Investors||Individuals and investment funds that want protection from inflation and market crises view gold as a way to preserve wealth. Investment demand for gold manifests itself through the purchases of gold bars, coins, and funds that invest in the metal.|
|Central Banks & Sovereign Wealth Funds||Most central banks and sovereign wealth funds hold gold reserves. Although none of the major world economies has a formal gold standard, many countries including the US, France, Germany, Italy, Switzerland, and China hold substantial gold reserves as a way to instill confidence in their fiat currencies.|
How To Keep Up To Date With Gold Price News
Save time researching gold with our easy step-by-step guide to getting breaking news delivered right to you with a Google Alert.
- Go to Google Alerts.
- Type “gold prices” in the search box.
- Choose how often you’d like to receive alert emails: as it happens; once a day; once a week.
- Choose the sources you want Google to search (eg, Blogs, Finance, News).
- Choose the language of the content you want to search through.
- Choose the country of the content’s origin.
- Choose how many results to have delivered: all results; only the best results, based on Google’s algorithms.
- Enter the email address where you want to receive your alerts.
Where Can Trade Gold?
Gold is a fascinating commodity. If you want to learn how to trade gold, read our gold trading guide.
You can also start your research on where to trade gold with reviews of these regulated brokers available in .
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. <b>Between 53.00%-89.00% of retail investor accounts lose money when trading CFDs.</b> You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Here are the answers to some of the most frequently asked questions about gold.
What does 14k gold mean?
A ring made of 14k gold is 58.3% pure gold mixed with 41.7% of a more durable metal alloy – usually a mix of zinc, nickel, silver, and copper, with a plating like rhodium. Pure gold is 24k. Without additional alloys, pure gold is soft and easily damaged. It is also heavy and expensive.
Are gold prices up or down?
On any given day, gold prices can fluctuate at a moment’s notice. Its pricing trend since the early 1970s has been upward, but this has not been consistent. It reached a peak in late-2011, lost roughly 40% of its value over the following four years, and has risen in the years following that. Take a look at our gold trading guide to get more information on gold prices.
What is the highest price of gold in history?
The highest price listed for gold in the modern era (since 1979) was $1,895 ($2,220 in 2020 dollars) in September 2011. It’s very difficult to compare prices over hundreds of years, but the value of gold spiked in the late 15th century when its value was higher (in real terms) even than its recent peaks.
If you want to learn more about gold trading and how you can trade the commodity, see our Gold Trading Guide.
Credits: Original article written by Lawrence Pines. Additional updates and additions in Jan 2021 by Marko Csokasi with contributions from the Commodity.com editorial team.