Gold2015 USD/oz 3.7 (0.18%) (Last updated - January 18, 2024 07:48 AM UTC )
1677.9 - 2078.8
January 18, 2024 07:48 AM UTCData Powered by Stockdio. Data delayed by 5 minutes unless otherwise indicated.
Gold is a precious and malleable metal which has continued to lure humankind since time immemorial. Thanks to its eye-pleasing glitter and non-corrosive nature, the yellow metal has been widely used for making jewellery.
Apart from this, gold has been used universally in exchange for goods and services. For many centuries the yellow metal was widely used as a currency in the form of coins. Through most of 20th century, gold was also used as the world reserve currency backing the paper currency system. Nearly 45% of the world's total gold is held by central and government banks.
Apart from this, gold is also used in many modern electronic devices like mobile phones, GPS systems, computers, televisions, and calculators because of its high conductivity. The precious metal also finds application in the manufacturing of glasses, dentistry, and medical treatments. Adding to that, it is widely used as a safe-haven investment – as a hedge against inflation.
Gold has been one of the oldest forms of investments known to man. Since it is not a consumable product, and does not corrode, majority of gold that is mined from the earth is still available on the planet.
The amount of gold mined every year is relatively low as compared to the growth in demand. This is the basic reason behind the constant rise in gold prices. On the supply front, around 75% of the world’s total gold demand is fulfilled by mine production every year while the remaining 30% is met from recycling of jewellery and technology extraction.
The price of gold is guided by the combination of several factors like supply, demand, and investors' behavior. Like every other commodity, the demand and supply dynamics of gold play a vital role in determining its price.
However, here are the few major factors that drive the yellow metal’s price:
- Inflation expectations
- Demand arising due to purchase of gold by governments and their respective central banks.
- During economic downturns, the price of gold shoots up on the back of rising demand from investors who perceive it as a safe investment.
- The jewellery demand is also a major contributing factor that influences gold prices. India, China, and the US are the primary consumers of gold in the form of jewellery.
- The advent of gold ETFs (Exchange Traded Funds) has also contributed to gold demand.
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Frequently Asked Questions
Most popularly, there are three major avenues to invest in gold – buying physical gold, purchasing gold exchange-traded fund (ETF), and trading in gold and its derivatives such as futures and options in the commodity market.
Physical gold can be purchased in the form of coins, bars, and bullions. For those who want to invest in gold without actually buying physical gold, ETFs could be a good option. ETFs are passive investment instruments which provide better flexibility and liquidity relative to buying physical gold. They also guarantee purity and hassle-free transaction with no burden of storage. Gold derivatives such as futures and options allow investors to buy or sell gold at a specific price for a certain period.
How does Fed fund rate affect gold prices?
Interest rates and gold prices are inversely corelated to each other. Rising Fed fund rates make fixed income and bond investments more attractive, as a result money flowing into higher-yielding investment increases, shifting investors' interest away from non-yielding investments such as gold. Contrarily, when interest rates trend lower, the inflow towards gold increases as investors don’t get good returns on their deposits and purchase gold by breaking their deposits, causing an increase in gold demand and pushing prices higher.
Gold has maintained its position as one of the major investment assets, backed by its rich history and value. For years, people have been investing in gold, driven by various factors. Gold holds some value as insurance against rough economic downturns.
Gold is commonly known as a safe-haven asset as it is negatively correlated with other assets. In times of market turbulence, when the prices of most assets decline, gold retains its value. Since gold does not easily corrode, it can be stored for many years without any concerns of it losing its properties. Investing in gold can provide a hedge against inflation. Furthermore, gold offers high liquidity thus making it attractive for big investors such as the institutions.
The gold-silver ratio is the most conventional form of expression that is being used to track the exchange rate. It is an expression of the gold and silver price relationship that shows the number of ounces of silver required to equate the value of one ounce of gold. For example, if the price of gold is US$500 per ounce and the price of silver is US$20 per ounce. Then the gold-silver ratio would be 25:1.
The rationale behind tracking the gold-silver ratio is that the prices of these two precious metals have a well-established correlation and they rarely deviate from each other.
As per the United States Geological Survey data, Australia holds the largest gold reserves in the world, followed by Russia and South Africa. The US contains the fourth largest gold reserves in the world.
In Australia, nearly 60% of gold deposits are concentrated in the Western Australia region while the remaining deposits are in Northern Territory and other states. The primary gold deposits in the country include those mined at Kalgoorlie in the Super Pit, St Ives, Granny Smith, Norseman, Callie, Mount Magnet, Gympie, Ravenswood, Stawell, Cadia, Henty, and Challenger. The Lachlan Fold Belt of NSW is the second-largest gold-producing region in Australia.