Gold is one of the most enigmatic metals in the world. It has a lot of desirable properties that make it the most practical metal in the world, however, it is a scarce precious metal valued for more than just its properties. The price of gold is affected by a number of factors from supply, demand, geopolitical tensions, and the economy as well as investor behavior. These aren’t as straightforward as most people would have you believe. These factors can sometimes be counterintuitive. For instance, gold is often presented as an inflation hedge because unlike paper money which loses its value as more of it is printed, gold stays constant because its supply is relatively constant.
Where does it come from?
The appetite for gold has not waned in the six millennia, since man first discovered gold, instead it seems the world needs more gold than what has or can be mined. It is estimated that the global production of gold rose from 1,518 tons in 1917 to 3,300 metric tons in 2019. The demand for gold in the same year was at 4,356 tons in 2019, higher than the actual supply. The demand for gold has been going higher since the Global Financial Crisis of 2008 because many investors turn to gold when the markets are in turmoil and there is widespread geopolitical tensions because the yellow metal holds its value better than any assets in times of financial crisis.
Some of the top gold mining countries in the world include China, Australia, Russia, The U.S, South Africa, Canada, Peru, Mexico, Indonesia and Ghana. Since 2006, China has occupied the top position of being the biggest producer of gold in the world. China produces approximately 399.7 metric tons of gold, Russia with 281,5 metric tons, the United States with 253,2 tons and Canada with 193.0 tons. South Africa, which was once the top gold producer in the world lies at number eight on the top ten list producing 32 tons less gold than what Peru produces and a few tons less than Mexico and Ghana which occupy the last two spots.
So, with the supply and demand remaining relatively static, what other factors affect the price of gold and why should they matter.
Gold dealers look at the following indicators to tell whether they should be buying or selling gold.
- The U.S. Dollar
Gold is priced in U.S dollars which means that the value of the U.S currency affects the price of gold. A strong dollar may mean a low price for gold, whilst a weak dollar could lead to an increase in the price of the yellow metal.
Historically, gold has always been a good hedge against rising inflation. Investors, and central banks buy gold when there is concern over rising inflation rates.
- Rising Use of gold in other industries
More than half of the world’s gold is used in the production of jewellery. The biggest consumers of jewellery in the world are China and India where gold is held in high regard and is part of the cultural fabric of those nations. When the demand for jewellery rises in the world, especially in those two countries, the price of gold is affected.
Gold is also used in electronics and other technological innovations because of its special properties. It is an excellent thermal and electrical conductor and because it is resistant to corrosion or bacterial colonization, it is also used in medical applications.
When you understand and learn to read these drivers, you will have a better chance of grasping the fluctuations of the gold price. Ideally, if you invest in any asset like gold, the ideal scenario is to buy low and sell high however, precious metals like gold are meant for long term buying and holding. The drivers of the gold price are many and as previously mentioned, they can be counterintuitive so there are no real guarantees on the “the best time to get the best price for your gold from gold dealers”