Why does price of gold rise and fall?

Gold is one of the oldest forms of investments available, but many people do not understand how the price of gold is set. Whether you are interested in diversifying your assets or worried about the consequences of an economic depression, it is important to understand the factors that influence rising gold prices. At one time, the value of gold was based on the gold standard. Under this monetary system, citizens were able to convert paper money into fixed quantities of gold whenever they wished. However, the gold standard ended on 15 August 1971 when governments were given the freedom to print as much paper money as they saw fit. Today, the price of gold is set by the Gold Fixing. Also known as the Gold Fix or London Gold Fixing, this is a meeting of five members of the London Gold Pool that is conducted twice a day by telephone, at 10:30 GMT and 15:00 GMT. Officially, the purpose of the Gold Fixing is to settle contracts between members of the London bullion market. However, the Gold Fixing is widely recognized as the benchmark used to price gold and gold products throughout the world. People can invest in gold directly through bullion ownership or opt for indirect investments such as certificates, derivatives, or shares. As with most other forms of investments, the price of gold is greatly influenced by supply and demand. Unfortunately, gold is rather unique in that most of the gold ever mined is still in existence and could thus enter the market at any time. This leaves the price of gold open to influences from hoarding and disposal practices. During times of national crisis, such as a war or a serious natural disaster, the price of gold tends to greatly increase. People start to fear that their paper currency may no longer hold value, but they see gold as a stable asset that can always be used to purchase food and other necessities. Another common factor influencing rising gold prices is the success of the real estate market. When there are low or negative returns on real estate, the demand for gold and other commodities typically is expected to increase. Bank failures, although somewhat uncommon today, can also contribute to an increase in the price of gold. The best example of this occurred during the Great Depression, when rising gold prices due to bank failures led President Roosevelt to ban the holding of gold by private citizens.

10 Reasons Why the Gold Price Will Rise Rapidly

in excess of $2000 an ounce . transferring its gold holdings from London to its new secure depository. 4. and increasingly for investment. And the more speculative stocks are likely to far exceed these targets. The question is how far and how fast. However hard they try to manipulate the market. The Chinese are long term thinkers and are undoubtedly taking this in to account as they accumulate gold and silver to store it close to home. But the message is simple.the number one precious metals mutual fund over the last 10 years . and where its out of harms way.this would mean gold stocks could rise 200-300%. China is adding to its gold reserves . Increasing war and social unrest . and now holds in excess of 1050 metric tons. In addition.war and social insurrection can escalate rapidly. investors need to be aware of the reasons for the expected rise in the gold price. The manager of the USAA Precious Metals and Minerals Fund . and one of the fastest growing economies China has made it legal for their citizens to buy gold and silver. To feel comfortable with investing in precious metals. these are the primary reasons why the stage is set for making your fortune.the Gold cartel is made up of the US Government and a collection of bullion and central banks. which has been the largest buyer of gold until now. China is encouraging its citizens to buy gold . Gold will continue to rise. Shortage of Supply . where we can access it instantly. The only way of slowing down demand is to let the price rise. The Hong Kong Authorities are. India already eats up the bulk . 3. As our target for gold is at least 100% from here . A move like this sends a message . Selling of Gold by the Gold Cartel . Central banks have long been sources of gold bullion used to manipulate the market and suppress the price of gold . 6. and we want it safely stored where we can see and control it. as we speak. In no particular order. 1. Gold has been sold in such large quantities to control the price. classic supply and demand will win. Transfer of Gold Depositories . there is not sufficient production to reverse. and are actively encouraging them to invest in these precious metals.China is making no secret of the fact that it intends to increase its gold reserves. 5.the current economic conditions combined with the increase in production costs have slowed down gold exploration and production. or even slow down the depletion of gold bullion stocks.There have been some incredibly interesting and provocative statements on the subject of Gold in the last few weeks. The world is already engaged in more conflict than at any time since the second world war. 7.believes gold stocks will gain 2% to 3% for every 1% move in gold. India. 2.with the world's largest population.Hong Kong has recently completed a high tech security vault at the city Airport. the infrastructural problems of South Africa have significantly effected their output. is expected to continue purchasing for jewelery.but they are running out.we will be accumulating gold.

they no longer provide security. . and gold becomes the new money. She has prepared a complimentary report packed with facts which you can download at Gold Report Anna enjoys sharing her knowledge with other enthusiasts. If you join our web site community you will have free access to a valuable regularly updated collection of articles. 8. Until recently Gold has not been an area the average investor would consider. There is more on this subject in our Gold Report 9. the bulk of assets will be owned by Asian interests and the new world order will prevail.They are currently supposed to hold over 1000 tons of gold (almost the same quantity. After a deflationary period.the argument persists. Best was based in Singapore for many years where she developed her interest in precious metals. Paper currency devaluation . When gold last peaked at $887 in 1980. comments and conversations on gold and silver. TUESDAY. Inflation causes gold to rise.as China). 2005 . This could happen again. Inflation vs. If this is indeed the case. Anna P. leaving limited quantity for ever competing and ever larger demand.the steep decline of the dollar has effected the rise in the gold price. GLD.of the annual mine output. the billions of dollars being pumped in to the markets will become inflationary. Their demand on gold output is a major push on the gold price. inflation was averaging 14% and peaked at over 20%. MAY 10. Click the Gold Report link above. the SPDR Gold Trust buys gold to back its shares. but currencies will at some stage be competing against each other for devaluation. All currencies become unreliable. When this stage is reached we've gone full circle. deflation . but that has changed and suddenly there are so many opportunities out there to profit from gold and silver. 10. Mortgages had risen in excess of 17%.

7." . Alex says the reasons being stated for the gold prices to increase are: 1. Gold is a "de facto currency" and therefore not subject to demand deficiencies caused by world wide economic slowdowns. which is considered a "strong buy signal. thus setting a new price floor. 4. 8. 6. An under supply of newly-mined gold. The Washington Agreement supporting gold by being generally against excessive Central Bank gold sales. 3. The never-ending story of the US trade deficit. despite gold analyists reporting these reasons for over 2 years without any mention in the mainstream news. with the US opposing it. 5. It's a natural hedge against the US dollar.Reasons for Gold Price to Increase Alex Wallenwein of a1-guide-to-gold-investments says that the main stream press is suddenly reporting on the reasons why the gold price will increase. It traded predominantly between $420 and $435 this year. 2. The real possibility of Asian countries buying whatever gold the European Central Banks dish up. 9. Gordon Brown striking out on his IMF gold sales proposal. Gold is an inflation fighter and they can see stagflation approaching.

financial institutions are toppling like tenpins and confidence in those institutions has never been lower. Freddie Mac and AIG. Gold bullion reached $1.S. the socialization of the auto industry. the Federal Reserve’s balance sheet grew by 146%. with the Dow suffering its worst annual decline since 1931. THE DOLLAR The dollar has benefited from the global flight from risky assets. Last year was the worst year for global equity markets since the Great Depression. but have not performed as well as gold during this crisis. the largest bank failure in history. ending the year above $850 a troy ounce. palladium and silver because the demand for these precious metals arises principally from their industrial applications. in September. Anything remotely risky or linked to the performance of the global economy was shunned. Of the major assets. the bankruptcy of Lehman Brothers. stimulus packages and bailouts mean much more money in the system.S. U. as well as the unwinding of bets made with borrowed dollars. not the ceiling. it becomes increasingly apparent that fear predominates. Huge amounts of money supply growth are on the way.4% over 2008. and the longer term inflationary pressures of the Federal Reserve throwing trillions of dollars at the U. Therefore. the Swiss national bank’s by 74%. While inflation isn’t apparent today. which is classically inflationary. stock mutual funds and bond mutual funds in one of the biggest flights to safety the financial industry has ever seen. the implosion of global stock markets. Since September 9. and an unprecedented shattering of confidence in both commodities and financial assets. The Fed and central banks throughout the world are sending so much money sloshing through the system that they will eventually generate a bad case of inflation. At some point. interest rates. the disappearance of the investment banking industry. Other precious metals have also been classified as Defensive Assets. the market is going to get over its concerns about deflation and become concerned about inflation – that will be the real inflection point for gold. U. and the Bank of England’s by 158%. DEMAND The U. Investors are pulling huge amounts of money from hedge funds. It arises from its use and worldwide acceptance as a store of value and a safe haven.80 in mid-March and Mints around the world ran out of popular gold coins and small gold bars after the collapse of Lehman Bros. In the past twelve months. Other analysts believe that $1500 is the floor. the collapse of home values.S.Reasons Why Gold Will Rise ECONOMY How bad can things get? Former Secretary of the Treasury Paulson talks of the current crisis being potentially worse than the Great Depression. the European central banks’ by 58%.S.030. a $700 billion Bailout with more to come.” U. while investment makes up only one-third of the total demand for platinum. REFLATION Gold benefits from the cure for deflation. Historically low U. Gold rose 5. Merrill Lynch predicts that gold will hit $1500. particularly because of the high concentration of uses of platinum in new automobiles – an endangered species in an economy in which automakers are begging for funds from Washington just to keep them afloat. Because of the inflationary impact of the Bailouts. retail sales and consumer sentiment. dollar weakness. platinum’s demand from industrial uses has fallen rapidly. economy make the environment favorable for gold and other tangible assets.S. Individual investors are abandoning anything with the slightest hint of risk. rate cut to virtually zero lowers the opportunity cost of buying gold and gold ETF holdings have exploded from 7 million ounces to over 30 million ounces in less than four years. Gold’s value does not arise from its usefulness in industrial or consumable applications. consumer confidence has fallen more sharply than in any period since records began in 1978. investment accounts for about 90% of the demand for gold. Alan Greenspan told Congress that the financial meltdown had left him in a “state of shocked disbelief. FEAR As the market does its daily job of balancing fear and greed. only Treasuries and gold have escaped the selling panic that has gripped the markets. Gold is different from other precious metals such as platinum. we have seen the nationalization of Fannie Mae. rather than from deflation itself. For example. the biggest fall in industrial production in 34 years. although gold has done well. That has come as a surprise to many who expected that .” Reputable economists are saying “this looks an awful lot like the beginning of the second Great Depression. the “breaking-ofthe-buck” of the supposedly rock-solid money market funds.S.

government. Dollar weakness. And tangible assets have produced exceptional investment returns on their own. assets. so they always have a ready market. you’re buying gold bullion coins whose weight. investors now have access to $50 coins that each contain one troy ounce of the purest gold available in any coin. correlation with stocks and bonds. content and purity are guaranteed by the U. Gold offers a higher level of liquidity and intrinsic value than purely paper investments. plentiful liquidity and policy reflation will be persistent themes over the next year or so. We see a breakout above $1. GOVERNMENT. THE GOLD AMERICAN EAGLE AND GOLD AMERICAN BUFFALO: GUARANTEED BY THE U.S economy would cripple the dollar. The Best Way To Buy Gold. like gold. Diversification into tangible assets. Whether buying American Eagle Gold Bullion or American Buffalo Gold Bullion coins. American Eagles are the best-selling gold bullion coins in America.increased government spending and a collapsing U. . but are expected to do so in an orderly fashion since no country wants a strong currency in a deflationary world. This makes them recognized not only as America’s official investment-grade gold bullion.S. The American Eagle Gold Bullion coin is an excellent way to own and hold gold. You can even include them in an IRA or SEP.500 by year-end. Massive fiscal and monetary stimulus have combined to weaken the dollar. monetary and fiscal policy is finally getting ahead of the deflation curve.S.S.00 per ounce as a sign that U. which will decline as the economy falters and the government continues to inject additional liquidity. is a highly recommended strategy for the savvy and prudent investor. They are traded worldwide on a daily basis. With the introduction of the new American Buffalo Gold Bullion 24-karat gold coin. GOLD PRICES We expect to see an eventual breakout in gold prices once the dollar softens more decisively and once reflationary policies gain economic traction.000.S. This is due to the fact that tangible assets have historically had a very low. Many investors combine tangible assets like gold with their stock and bond portfolios to reduce risk. DIVERSIFICATION REDUCES RISK. Such conditions are consistent with higher gold prices and we expect to see gold prices exceed their prior peak by summer and exceed $1. Liquidity conditions will be easier and easier as the year progresses as part of the fight to support the economy and reduce deflationary pressures. but accepted worldwide in major investment markets. even negative. In the longer term. the dollar’s health remains dependent upon foreigners’ appetite for U.

3. 2009 Kurtis Hemmerling Gold's high price forecast for 2010 and current spot price per ounce values beyond can be rationalized partially with these common economic factors: 1. bomb blasts. and civil unrest. Why might there be a strong correlation between these two very different commodities? One reason could be that an increase of interest in any commodity leads to enlarged buying in other commodities such as oil and precious metals.’ Turning their investments from currency to gold bullion will allow investors some limited protection from localized problems that may inflate or otherwise devalue their dollar. assassinations of government officials. and other news worthy items can lead to investors buying up gold. . A major stock market correction or upheaval can have similar consequences. One cycle might be led by commodities. Gold Bullion Values are Linked to Oil The spot price of gold and oil has often been noted as having a symbiotic relationship on charts. gold prices are closely linked to oil.Gold's Rising Spot Prices and Economic Factors WHY BULLION PRICES PER OUNCE ARE RISING IN VALUE Dec 15. 5. 2. Different market cycles will bring investing in diverse portions of the market. Interestingly. US Dollar Weakness Central Banks Buying Gold Increased Interest in Future and Commodity Trading Gold Producers De-hedging Futures Contracts Supply and Demand Imbalance But there are other reasons for a high value per ounce on this precious metal. 4. What are some of these events that can trigger gold buying and high value forecasts? Terrorist attacks. Whether or not these economic events continue in 2010 remains to be seen. the investors therein will often turn to gold as a ‘safe haven. Gold Price Per Ounce Forecasts Raised During Political and Economic Tensions As economies de-rail.

02 December 2009. and gold bars and bullion is typically used to protect against this effect. . “FACTBOX: What's Driving Surging Global Gold Prices?”. What is Gold’s Long Term Price Forecast The article in the following link details the predictions and gold's economic forecast for 2010 from many well respected gold analysts. The Hindu Business Line. Reuters. Nov. Subraman Chennai.R. Many see the price of gold maintaining this high level with a short term correction. “High Gold Price Volatility Sees Almost $90 Fall Before Small Bounce”. investors turn to gold buying as a hedging tactic. Mineweb. However each investor chooses to trade the spot price surge in this commodity. and still other cycles driven by large capitalization blue chip company investing. “Where is Gold Headed?”. a careful analysis on why gold price forecasts and per ounce predictions are so high for 2010 and beyond will give one insight into this important economic market cycle. M. Rising oil prices quickly turns into economic wide inflation. gold could gain stability from it creating a long term trend.another by high growth stocks. while others are not quite as optimistic. If oil continues to rise in 2010. 29. Atul Prakash and Jan Harvey. Sources Jeffery Nichols. A second reason that world gold prices are historically linked to oil is that as petroleum products rise. 08 December 2009.

we foresee increased interest in gold from the investment community with faith in fiat currencies undermined. silver. Ross was the fourth-best gold forecaster for 2009 with a price average of $988 per ounce.with his accompanying comments. .080 We forecast firm yet volatile prices for gold in 2010. Whilst possible default by sovereign entities may continue to play on minds in 2010. this should ensure that investment demand not only fills the gap from diminished jewellery sales as prices rise but should also lead to a significant increase in total gold demand.236 per ounce in 2010. predicted Ross Norman. this should increasingly provide advantage to hard assets that provide wealth preservation and risk diversification . up 27% on the 2009 average of $972. as continued strong investment demand will more than offset lower jewellery sales.com.we see gold and the other precious metals as a beneficiary of this. Meanwhile. This.in dollars per ounce . we believe. We are concerned that the massive government stimulus packages via quantitative easing. director at TheBullionDesk. paid for with borrowed and printed money. are having only a relatively modest impact on growth as bank balance sheets may take longer to repair than widely expected. As a result. GOLD Average $1.Average gold price to rise almost 30 pct in 2010 on investment demand . supply is likely to remain constrained as few new projects come on stream to replace ounces taken out of the market by ETFs. according to an annual poll run by the London Bullion Market Association (LBMA). Below are Norman's 2010 forecasts . platinum and palladium from banks and other specialist institutions.236 High $1. will give rise to continuing uncertainty on the tenure and outcome of these actions. The LBMA survey includes forecasts from leading industry analysts for gold.Ross Norman by The Bullion Desk Spot gold will average $1. on Friday.425 (record level) Low $1.

But how can we be sure of this and what factors need to be considered when making such a prediction. How to Invest in Gold There are numerous ways in which to invest in gold. The supply for gold remains fairly constant at present because production has not significantly increased. Put simply this means as the value of the dollar falls the value of gold goes up and vice versa. The Effect of the U.S economy can affect the price of gold. Investors can rest easy though because even if the levels of production increased the fact is the amount of gold on the planet is limited and eventually it will run out meaning the price (in theory) can only increase in time.S dollar. • Gold Accounts . 2008 Peter Reeves It’s been predicted that the future price of gold could rise to over $2000 dollars per ounce in the next few years. This encompasses the above three principals.S economy (particularly banking) means investors look to “safer bets” such as gold. Furthermore a lack of confidence in the U. These factors are • • • Investment Demand Market Fundamental Physical Market Conditions Investors must consider how these different factors might alter in years to come.Predicting the Future Price of Gold ARE GOLD COMMODITIES A SAFE MARKET INVESTMENT? Aug 14. What Affects the Price of Gold? If one is to predict the future price of gold then they must consider the principal factors that affect its price. The knock on effect being that the demand increases whilst supplies stay the same and thus the price increases.S Economy on the Future Price of Gold Gold is a commodity that is used as a “hedge” against fluctuations in the U. These are. This is because of the lack of any newly developed mining sites. For instance below is how the U.

Gold Futures trading is seen to be less high risk than other futures trading because it is not a vulnerable to massive price fluctuations like other commodities. a top industry official said. MUMBAI: India. The upside of this is that the growth in the share price can actually be more than the gold price per ounce growth. IBMA set to catapult India as price-setter in bullion trade. the leading player in import and trade in bullion and export of jewellery. Futures investments are common in the commodities markets and gold is no exception. is set to become a 'price-setter' from the position of a 'price-taker' in bullion trade.• • • • Gold Bars or Coins Exchange Traded Funds Unit Trusts and Investment Trust Mining Companies Mining companies’ shares present more of a risk than just investing in gold assets because they can be affected by other market/physical factors. . Gold Futures A futures investment is basically when you agree to buy or sell shares in a stock at a specific time in the future for a set price (agreed by the buyer and seller).

investors. Most of the other commodities and merchandise are under OGL. The idea of launching IBMA is to promote a professional organisation dedicated towards the growth and development of bullion trade and industry. an industry official said. nominated agencies. It also aims to create linkages between domestic stock of gold and silver. in case of gold and silver. which is valid for the entire country. During recent times. the bullion market has witnessed a high degree of volatility in prices. "By bringing together bullion dealers and jewellers. still it does not exert any significant impact in discovery of gold prices in the international market due to its fragmented and unorganised bullion trade. This has severely affected the bullion and jewellery trade in India." Bombay Bullion Association President. "Following the setting up of the Indian Bullion Market Association (IBMA) by leading bullion and jewellery merchants associations in alliance with the National Spot Exchange (NSEL). the official said. prices of gold and silver differ from place to place in India even at the same moment. as demand for ornaments as well as bullion usually comes down if prices are volatile. consumers. exporters. Anjani Sinha. bullion banks. where both import and export of the commodity is allowed without any hassle. dealers. mostly due to fluctuation in the international market and factors influencing dollar valuations. India will be able to create a benchmark Indian spot price for bullion. It creates a distortion in physical trade. IBMA will address global bullion issues and reduce disparity between domestic prices and international prices. recycled gold and silver and to remove disparity between domestic prices and international prices. This creates a disparity in Indian gold price and international prices. jewellery merchants." NSEL Managing Director and CEO. IBMA is committed to identify the inefficiencies involved in Indian bullion market and to create a momentum to remove such inefficiencies in a gradual but steady manner. In fact. There is no benchmark price available. The country depends on the international market for the benchmark price which is based on London AM/PM price fixing. But. IBMA is a national level trade association for representing bullion importers. there are a number of restrictions on import as well as export of gold. if the international price goes above a certain level. told reporters here. The exports of Indian gold bar is also not allowed by the Government. said. The objective of promoting IBMA is to create linkages between domestic stock of gold and silver. ornament dealers.India imports around 25 per cent of the world's gold production. traders. Suresh Hundia. which in turn severely affects import of gold in India. refineries and all stakeholders connected directly or .

indirectly with the bullion trade and industry. announcements relating to import duty. which may directly or indirectly impact the bullion trade and industry. India's gem and jewellery sector commands around 80 per cent of the jewellery trade worldwide. budget proposals. IBMA would interact with the Central Government. Total exports of jewellery in April 2009 was at Rs 5. IBMA has plans to set up offices in major bullion trading hubs and provide customised services to the bullion dealers in trading. around 600 MT of gold goes into making jewellery. India is the leading consumer and importer of bullion. VAT and other issues. RBI. It consumes nearly 800 MT of gold. The domestic bullion and jewellery market is estimated to be around USD 16. . which accounts for 20 per cent of world gold consumption.1-billion. State Government. nominated agencies. Out of this. delivery and settlements. banks and other regulators for submission of impartial views relating to the bullion trade and industry and to have consistent follow-up regarding major policy initiatives. Sinha said. which is expected to grow to the size of USD 25-billion within 2-3 years.749. import and export policies.56-crore.

president of BBA. has decided to set up its own trading platform for gold. We also want to set up a hallmarking centre so that it would help us in determining the prices of both gold and silver. Bombay Bullion Association (BBA). IT People (India) Ltd and Reliance Money Ltd. said: “That is one of the reasons why because we are launching such a platform. Though India was a leading consumer of gold. but will also facilitate retail investors in the purchase of gold coins and bars”. In the proposed platform.000 plus outlets spread across 5. Talking about the functioning of the trading platform. they agreed with the the fact that “it’s time we moved from price taker to price maker”. we will focus on setting up the gold in line with the blobal market cues. Tired of the wild fluctuations of gold price in the London Bullion Market and its impact on Indian market.” “Moreover. the way it is being done in the AM/PM system in London.000 towns. Asked whether the yet-to-be formed limited company has obtained the requisite permission from the authorities including the Reserve Bank of India (RBI). director and CEO of Reliance Money Sudip Bandyopadhyay said here Monday: “We have not approached them so far but we will be intimating the authorities for necessary clearances. Suresh Hundia. may soon manage to move from being a mere “price taker” to a “price maker” in the world of royal metal. we would . while BSE along with NMCE would look into the global variations and provide the link-up required with the commodities market.” Talking about the physical distribution. whereby the gold could be purchased and sold off via online and be handled by the IT People.India may soon fix gold prices for global market(Lead) Mumbai.” Talking about the trading platform. Though the representatives of the respective partners of the proposed joint venture (JV) denied that the decision had. Bandyopadhyay said: “The company itself will not deal with trading but it will just provide a platform. he added. we will contribute through our strong retail presence with over 10.” he added. a “total helplessness” has gripped the traders in controlling the prices. Bandyopadhyay said it would be done through various centres. After all. it is not just the trading platform which we plan to launch. in collaboration with Bombay Stock Exchange (BSE). one of the leading gold consumers in the world. In nutshell. Bandyopadhyay said the Bullion Spot Market (BSM) will be an over the counter bullion trading platform which would “help jewelers not only in monitoring the international bullion price fluctuations on real time basis. we want to launch it in a month’s time. The price fluctuation was a thorny issue for the gold traders. “anything to do with the recent pole-vaulting of gold price”. “As far as we are concerned. National Multi-Commodity Exchange (NMCE). April 21 (IANS) India.

” he said. .help retail investors in purchasing gold from IT People providing technical knowledge for the exercise.