How is gold priced: A beginner’s guide

For almost 3,000 years, wealth has been stored in gold. It is primarily due to the fact that gold is extremely scarce and becoming difficult to find and mine nowadays.

It’s getting tougher and harder to find fresh gold deposits after centuries of gold mining. As on 2022, Africa is the world’s largest regional gold producer, accounting for some 27 percent of global gold production. Country-wise, China is the highest producer with 378.2 tonnes annually, accounting for around 10 percent of global gold production.

What drives gold price

The factors influencing the price of gold might be contradictory and perplexing. While supply and demand mostly determine the price of other commodities, the psychological aspects of economic downturns frequently impact gold prices. It’s critical to understand how these and other elements affect the price of gold.

Gold is an in-demand asset and various factors drive its price:

• Supply, demand and new discoveries
• The US dollar
• Interest rates
• World economy
• Practical usage

Risk in gold investment

Gold prices can be very volatile mainly because of geopolitical tensions, demand and supply, etc. Below are some quick factors:

• Price volatility: Gold prices are subject to fluctuations based on a range of economic variables, much like any other investment.
• No income: Gold does not yield dividends or interest, in comparison to equities and bonds.
• Storage fees: If you own physical gold, then you would need to pay for insurance and safe storage.

Future trends in gold price

Gold prices surged in the last few months of 2023 after a powerful rally was sparked by central bank purchasing and mounting investor concern over the Israel and Russia-Ukraine conflicts. A falling U.S. dollar and expectations of Federal Reserve rate cuts further boosted bullion prices, which hit a record high of $2,135.39/oz in December, as per a report by J.P. Morgan.

After a hiking cycle that pushed the Fed funds rate to its highest in more than 22 years, policymakers on the Federal Open Market Committee (FOMC) have indicated at least three rate cuts in 2024, as inflation eases from the 40-year highs seen in mid-2022. Gold prices are expected to dip in the near term before climbing to new highs later in the year, with a forecasted peak of $2,300/oz in 2025.

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