Factors Impacting the Current Price of Gold

By D.A. Barber , last updated June 25, 2011

Gold investors need to know not only the up-to-the-minute price of gold, but also the factors impacting the current price of gold. Gold, like virtually all the precious metals today, is lurching forward past its highest market price value ever; the higher the market price, the higher the demand. What amounted to a “gold rally” has quintupled the price of gold in less than 10 years.

The many factors that affect the price of gold are both traditional and new. The traditional factors can include geopolitical unrest, typical demand and supply, speculative buying and selling and monetary policies of large central banks that include any increase in printing paper currency. More recent factors include the increased demand for industrial applications of gold, such as the high-tech electronics that fuel our digital world.

Global Gold Pricing

First, know this: globally, there are basically ten major gold exchanges that all have some influence on the day-to-day price of gold. These include two in the United States, one each in Britain and India, four in Asia and two in the Middle East. Factoring in the changes in time zones around the world, gold is essentially traded, bought and sold 24 hours a day, seven days a week. This is why it is essential to watch the price of gold closely, since if it goes overnight in Asia, it will open higher the next morning in New York on the Commodity Exchange (COMEX) of the New York Mercantile Exchange.

Global Paper Currency Supply

One of the strongest forces that can drive the price of gold higher is an over-printing of paper currency which creates “money” that in itself has no worth other than inflating the global money supply while reducing it dollar value. This is particularly true for the U.S. dollar, which is considered the world’s reserve currency and therefore has a huge impact on gold prices. Since the U.S. government authorized the printing of 1.3 trillion new dollars in October 2008, the price of gold has doubled, according to Gold Newsletters.org. This is because while the value of currencies can depreciate, the power of gold remains the standard for preserving wealth and as a hedge against inflation.

Bank Failures

Bank failures can affect the price of gold, which has historically held an inverse value relationship with the dollar, where its value can go up when the rest of economy is declining. President Roosevelt actually outlawed gold ownership by U.S. citizens in 1933 when bank failures during the Great Depression caused people to start hoarding the valuable metal. Many people have once again been investing in gold during the current economic crisis, causing its value to go up and demand to increase. This is because if investors believe there will be more economic turmoil resulting in bank failures, they will move to capitalize on the anticipated increase in the value of gold.

The Digital Demand

The demand for gold has also been driven up by industrial applications, such as the high-tech electronics industry and growing renewable-energy ventures, because gold is such a good electrical conductor for critical circuits.

Because solid-state electronics use very low voltages and currents, it is important the contact points between circuits are not interrupted by corrosion or impurities. Gold is used because it is free of corrosion or tarnish, making it a more reliable conductor for these small currents than any other metal. In fact, small amounts of gold are used in virtually every electronic device you own, including computers, television sets, cell phones and personal digital devices.

Price Manipulation

Ongoing allegations that the price of gold has been manipulated have managed to impact the price of gold, whether or not they are actually true. The most recent reports indicate that the price of gold has been artificially suppressed by some central banks and governments to prevent prices from rising to what may be its actual price of $3,000 to $5,000 an ounce, according to an April 2010 report by GoldPrice.org.

What was alleged by a London Metals Trader whistle-blower at a Commodity Futures Trading Commission Hearing in Washington was that the London Bullion Market Association (LBMA) was trading gold that did not exist in order to keep the price down with short selling.

According toGoldPrice.org, both traders and buyers came out winners as long as no one requested actual delivery of their gold bars. Much of this came to light and ignited the investigations when four LBMA gold bars were delivered to a Hong Kong client who discovered that each of the 400-ounce bars were a counterfeit metal with a thin layer of gold covering it

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