With signs of global economic slowdown, the gold rates are rising towards US$ 2000 an ounce. High inflation, geopolitical problems, and growing fear of a recession are invoking bullish sentiments towards gold. In the coming months, we can anticipate a gold price of 1oz to hit record highs. Though gold prices declined in the recent months as the US Central bank started its hiking cycle, spot gold rates breached US$ 1,840 on 15th June 2022.
How is gold price determined?
Since gold is traded in the commodity market for precious metals, its price fluctuates daily and is determined by the market demand for gold on that day. Some factors influence gold prices. Some of these are –
Central Bank Reserves
Central banks hold gold and paper currencies in reserve. The gold prices rise when the central bank begins to acquire more gold to diversify its holding. Many nations in the world hold higher reserves of gold.
US Dollar Rate
Historically, the price of gold has been inversely proportionate to US Dollars. Thus, when Dollar rates fall, gold rates rise and vice versa. The main reason is that investors park their funds on gold to hedge their investment against falling Dollar rates in the currency markets. Thus, gold is a hedge against inflation and wider market fluctuations. The gold price 1oz will be higher when US Dollar rates are lower.
Demand for gold as jewelry and in industrial uses
As of 2019, approximately half of the gold demand was for jewelry. China, the US, and India are the largest consumers of gold jewelry. There is a sizeable demand for gold for manufacturing medical devices and precision electronics. Thus, the demand and supply of gold influence its rate greatly and contribute to the price fluctuations in the stock market every day. However, the gold jewelry rate is higher than the spot price of gold. The reason behind this is that the dealer attach a premium to it for the making charges. Furthermore, at the time of sale, gold jewelry isn’t likely to fetch a higher rate than the day’s spot market because the dealer will deduct the amount for the quantity of silver or other metals added to make the jewelry.
Gold bullion in the form of bars and coins is sold by dealers authorized by the US Mint, banks, and some commodity dealers. It is also traded in the markets as exchange traded funds. The best place to buy gold bars is with authorized dealers, as they will have genuine products from reputed international mints and banks. Generally, banks, financial institutions, and high-net-worth buy gold bullion in the form of bars. However, smaller-sized gold bars are in demand among small individual investors because they have a lower premium and are easier to store.
Production of gold
Gold mining is done in China, South Africa, The US, Australia, Peru, and Russia. Gold production affects supply and demand. There hasn’t been any significant rise in gold mining in the past decade, which is one of the reasons why the prices are higher.
Most mining companies mint their gold bars and supply them across the world. The best place to buy gold bars is from dealerships that trade directly in these gold bars.