Currency Not Commodity
Gold acts more like a currency than a commodity, therefore the consumption model of pricing does not apply to this particular resource. The consumption model is a way to forecast prices for resources that are consumed or depleted, and that are produced or replaced annually. Oil is a great example of a commodity that can be analyzed through this consumption model, but gold performs very differently. Though gold can be used in jewelry, dental implants and other tangible items, gold used for investing is stored in the form of gold bars, also called bullion, gold coins or in other concentrated quantities. Furthermore, while mining produces a small amount of new gold, the price is not generally determined by new reserves. The amount of gold above ground and on the market was thought to total about 158,000 tons as of 2006.
What determines the price of gold in the worldwide market?
The price of gold is determined more by demand than by supply, more by saving than consuming, and also largely by speculation. The price of gold is influenced by the willingness of gold holders to sell it on the market, and the more that individuals, companies, banks or governments hoard their gold reserves, the higher the price will be. We are seeing the storage of gold occur especially in the economically rising countries of China, Russia, Brazil and India, so current gold prices are at an all time worldwide high.
How is gold priced each day?
The price of gold bullion fluctuates daily based on the spot price, which is set by London Gold Fixing. The spot price is the cost of gold without additional premiums added to its price. The gold spot price is used as a standard to trade on open markets across the world. Daily fluctuations to the price of gold are based on supply and demand on the open markets. Other factors that affect the price you pay for physical gold are: government premiums for mining & refining, minting costs for coins, dealer costs to buy gold inventory, administration and distribution fees and currency rates.
Today’s Current Price of Gold