Gold has been a medium of exchange around the world for thousands of years. In this regard, we can say gold markets have been around as long as civilization. Gold is still traded today, whether it is individuals buying gold jewellery and selling it when prices or high or traders investing in gold ETF5 or commodities contracts.

Gold as an Asset Class

Gold is a commodity, an item that you buy and sell and theoretically could take delivery of. It is, of course, easier to receive an ounce of gold mailed to you than a ton of soybeans. That’s one reason why gold is so often bought and sold. There are people who do order it in order to receive it, storing gold coins, gold bullion or even gold bars as a hedge against inflation or economic uncertainty. Traders can buy and sell futures contracts or options on futures contracts, where futures contracts can theoretically force you to take possession of it once you pay the price tag. Gold can be bought and sold through financial instruments like exchanged traded funds, where the financial institution buys and sells gold along with other precious metals, invests in gold mining companies and exploration firms, and trades in gold certificates.

Trends in Gold Prices

An ancient text said an ounce of gold would buy 350 loaves of bread. Today, an ounce of gold can buy several hundred loaves of bread. A Greek gold talent would pay for 270 years of a skilled craftsman’s labour; it would be worth more than a million dollars today. That’s still a lifetime of work for a skilled craftsman today, assuming they’re paid $40,000 a year. In this regard, gold is not worth as much as it was in ancient times but remains incredibly valuable. Gold prices today hover between $1000 and $1700 an ounce. Prices fluctuate based on demand, and there are a variety of factors that cause gold prices to swing radically one way or the other.

Factors that Drive Gold Prices

When there is uncertainty and fear of the future, gold prices soar. People who trade gold can sell it at a hefty profit while those who are afraid their money will be worthless or their stock portfolio will collapse flood into the gold market to buy a safe, long-term investment. When the financial markets are calm, gold prices are low but may go up along with the rate of inflation. Gold prices can drop in response to government rules and regulations. Governments that forbid gold ownership, such as those that hit in the Great Depression, make gold prices to collapse, according to the World Gold Council. When a national bank sells gold reserves to raise money to pay expenses or maintain the value of their currency, gold prices drop. Conversely, India’s demonetization policy caused a short term spike in gold prices. When it became illegal to own large bank notes and people had to fill out long, invasive forms to deposit cash reserves, they bought up gold in volume instead.

Source: Goldprice.org: http://goldprice.org/gold-price-history.html

Gold supply affects prices, but in reality, this hardly changes. The prices of commodities like wheat and soybeans change with the weather. Heavy spring rains, late spring freezes and early winter snows can cut the supply of farm commodities in half or more. Excellent weather could result in twice as much harvested as expected. In comparison, a mining company may say they’ve hit a rich vein of gold, but that will only cause prices to swing a few dollars one way or the other. You won’t see gold prices faIl 50% because of such a discovery.

Consumer demand for gold can drive prices one way or the other. Demand for jewellery is rather constant. Demand for gold in electronics can drive prices up, too, though this isn’t as much of a factor today as it was in the 1970s.

If you have investments in the yellow metal, or are looking to finance ore and minerals including gold – check out our Trade Finance Ores and Minerals page.

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