How to Global Gold Rate Determined?
Gold is dealt with by the four types of firms in the industry. They are exploration or development, mining, consumers, and recyclers. The 3 categories of consumers are industrial, jewelry producers, and investors.
Gold prices today are fixed on a daily basis. It is an agreement between the participants on the same side in the market to buy and sell gold at a fixed price or to maintain the market conditions to make the price stay at a certain level by controlling the supply and demand. Gold Fixing is done at London Bullion Market Association. The prices are set daily at 10:30 am GMT and 3 pm GMT in US dollars.
Types of prices
There are 2 types of prices, spot price, and futures price.
• Spot priceThis is the current market price at which gold was bought or sold for immediate payment and delivery.
• Futures priceThis is the price at which the participants in a futures contract agree to transact on the date of settlement.
The futures price is sourced on Exchanges. Gold futures are traded in the major exchanges around the world. These exchanges are the primary source of gold futures prices. The major gold exchanges are:
• TOCOM, Japan
• Shanghai Gold Exchange, China
• MCX, Mumbai
• DGCX, Dubai
• Istanbul Gold Exchange, Istanbul
• COMEX, New York
.
Drivers to determine the gold rates
There are 6 fundamental drivers that help determine the gold rates. They are as follows:
• Price movements of other commodities and the demand for these commodities. Indirect pricing of the production cost.
• US and Global inflation which is driven by the rising money supply.
• Twin deficits that result from trade and growth imbalances against the US. This culminates in a fear factor.
• Activities of the Central Bank such as money printing, gold purchases, and sales.
• Real interest rates in the US, compared to inflation and wages. This culminates in financial repression.
• Using the production or demand or inventory formula in the form of demand and supply.
What helps drive the price of gold, one of the most precious metals in the world is the demand for gold, the number of gold reserves in the Central Bank, the value of the US dollar, the desire to hold gold as a hedge against inflation and currency devaluation.