Here you will find answers to the following questions:
1. What factors affect the price of gold?
2. Under what circumstances has the price of gold historically risen?
3. What is the relationship between gold and the U.S. dollar?
At a glance
- Since the 1970s. Since the 1970s. Gold has not been directly linked to any currency.
- It is a raw material with applications including. in industry, technology, jewelry and investment, and its price is not fixed – it changes constantly.
- The price of gold is determined by the main market forces: demand and supply.
- Demand and supply are influenced by a number of market and economic factors.
Goldsaver relies on the gold rate set by the National Bank of Poland. Another popular rate is the fixing published by the London Bullion Market Association (LBMA). Using modern information and communication technology, the LBMA conducts an auction to determine how much market participants are willing to pay for an ounce of gold at any given time. This process is carried out twice during each business day.
This is slightly different for commodity exchanges, such as the US COMEX or China’s Shanghai Gold Exchange. There, rates are plotted on a daily basis, during the exchanges’ operating hours.
Paweł Svinarski
“Z Goldsaverem kupujesz fizyczne złoto w formie sztabek, a nie jakieś opcje na złoto czy inne papiery wartościowe oparte o złoto, którego tak naprawdę wcale wtedy nie posiadasz. W dobie niepewności na rynku, warto mieć coś co faktycznie posiadamy pod ręką”
Demand and supply
On how the price of gold, is determined by two basic market forces: demand and supply. If there were a perfect equilibrium between these forces, the price would be constant. However, the relationship between demand and supply is constantly changing, so the price that the parties to a transaction are willing to accept also changes.
Supply is largely mine production and, to a small extent, recycling. The supply part of the equation is very stable, changing slightly over the years. Increasing or decreasing gold production at a mine managed by a giant company is not a simple matter.
Demand for gold is generated by the jewelry industry (more than 50 percent), investment (25-30 percent), central banks (10-12 percent) and industry and technology (8-10 percent). It is worth noting here that China and India alone account for half of the jewelry demand – 1/4 of the world’s gold is sold in the form of jewelry in India and China. These countries have strong traditions of accumulating jewelry as a form of wealth investment.
So if you add up investments, central banks and jewelry purchases by the Chinese and Indians, it turns out that more than half of the world’s gold is bought with the intention of wealth preservation. What makes all these people move to buy?
Economic and market conjuncture
Gold has always been in high demand during periods of economic turmoil and uncertainty. Examples, if only from the last two decades are: the 2008 crisis and the 2020 COVID-19 pandemic. In both cases, the price of gold recorded its historic highs.
Inflation
Due to its limited supply, gold is seen as a way to protect capital from inflation-induced depreciation. In periods of elevated inflation, gold is more in demand. In extreme scenarios, such as hyperinflation in Zimbabwe or Venezuela, gold becomes an alternative money substitute, as does the U.S. dollar. In situations of elevated inflation, it is a form of safe deposit.
Geopolitical unrest
Gold may also attract the interest of buyers during periods of geopolitical turmoil. Especially those who wish to place their wealth in safe assets with no exposure to distressed markets. Gold is ideal in this regard – unlike currencies, stocks or bonds, it has no country of issuer. Gold is completely international and, unlike real estate, for example, completely mobile.
US dollar
There is often an inverse correlation between gold and the U.S. dollar – when the dollar weakens, usually the price of gold goes up, while when the dollar strengthens, the price of gold falls.
Both the US dollar and gold are among the so-called “safe havens.
safe havens.
However, gold is typically a long-term instrument, while the dollar is characterized by extreme liquidity – you can buy anything and fast with it.
Depending on market sentiment, capital may move more towards the dollar (liquidity) or more towards gold (long term).
Mostly, gold’s behavior is a product of many variables, the key ones mentioned above, as well as other, more minor ones. It is very difficult to determine precisely how gold will behave in the near future. However, history shows that gold as a counterweight to the dollar, which after all is constantly losing purchasing power, has been strengthening over the decades.
In addition, in Poland gold is sold for zlotys, so the relationship between the U.S. dollar and the Polish zloty is also important from the customer’s point of view.
