Factors affecting gold price changes
Before the 1970s, gold prices were basically determined by governments or central banks of various countries, and gold prices were relatively stable internationally. In the early 1970s, the price of gold was no longer directly linked to the U.S. dollar, and the price of gold gradually became market-oriented. Factors affecting gold price changes were increasing. Specifically, they can be divided into the following aspects:
1. Supply factors :
(1) Gold stock on the earth: There are currently about 137,400 tons of gold in the world, and the stock of gold on the ground is still growing at a rate of about 2% every year.
(2) Annual supply and demand: The annual supply and demand of gold is approximately 4,200 tons, and the newly produced gold every year accounts for 62% of the annual supply.
(3) New gold mining costs: The average total cost of gold mining is approximately slightly less than US$260 per ounce. Due to advances in mining technology, gold development costs have continued to fall over the past 20 years.
(4) Political, military and economic changes in gold-producing countries: Any political or military turmoil in these countries will undoubtedly directly affect the amount of gold produced in that country, and thus affect the world's gold supply.
(5) Central Bank’s Gold Selling: The Central Bank is the largest holder of gold in the world. In 1969, the official gold reserve was 36,458 tons, accounting for 42.6% of the total surface gold stock at that time. By 1998, Official gold reserves are approximately 34,000 tons, accounting for 24.1% of all mined gold stocks. Based on current production capacity, this is equivalent to 13 years of world gold mine production. As the main use of gold has gradually changed from an important reserve asset to a metal raw material for the production of jewelry, either to improve the country's international balance of payments or to suppress the international gold price, the central bank's gold reserves in the past 30 years have been both absolute and relative. There has been a significant decline, and the decline in quantity is mainly due to the selling of inventory reserves of gold in the gold market. For example, the massive sell-off by the Bank of England and the preparations of the Swiss National Bank and the International Monetary Fund to reduce gold reserves have become the main reasons for the recent decline in gold prices in the international gold market.
2. Demand factors: The demand for gold is directly related to the use of gold.
(1) Changes in actual demand for gold (jewellery industry, industry, etc.).
Generally speaking, the development speed of the world economy determines the total demand for gold. For example, in the field of microelectronics, gold is increasingly used as a protective layer; in fields such as medicine and architectural decoration, although technology The progress of the times has led to the continuous emergence of gold substitutes, but the demand for gold is still on the rise due to its special metallic properties.
In some regions, local factors have a significant impact on gold demand. For example, India and Southeast Asian countries, which have always had a large demand for gold jewelry, have seen a significant reduction in gold imports since 1997 due to the impact of the financial crisis. According to data from the World Gold Council, gold demand in Thailand, Indonesia, Malaysia and South Korea has dropped by 71% respectively. %, 28%, 10% and 9%.
According to statistics, China's current per capita gold consumption is only 0.2 grams, which is still far behind the world's largest gold consumer. The current per capita gold consumption in India is 0.85 grams, which is more than four times the per capita gold consumption in China. Judging from China's economic development and per capita income, China is much higher than India. Therefore, China has a very large potential for gold consumption and the prospects are very promising.
(2) The need to preserve value.
Gold reserves have always been used by the central bank as an important means to prevent domestic inflation and regulate the market. For ordinary investors, investing in gold is mainly to achieve the purpose of preserving value under inflation. In an economic downturn, because gold is more secure than monetary assets, the demand for gold rises and the price of gold rises. For example: In the three U.S. dollar crises after World War II, due to the serious balance of payments deficit trend of the United States, the U.S. dollars held by various countries increased significantly. The market's confidence in the value of the U.S. dollar was shaken. Investors rushed to buy gold in large quantities, which directly led to the bankruptcy of the Bretton Woods system. . In 1987, due to the depreciation of the US dollar, the increase in the US deficit, and the unstable situation in the Middle East, the international gold price rose sharply.
(3) Speculative demand.
According to the international and domestic situation, speculators take advantage of the gold price fluctuations in the gold market and the trading system of the gold futures market to "short sell" or "replenish" gold in large quantities, artificially creating the illusion of gold demand. In the gold market, almost every major decline is related to hedge fund companies borrowing short-term gold to sell in the spot gold market and building large short positions on the COMEX gold futures exchange. When gold prices fell to a 20-year low in July 1999, data released by the U.S. Commodity Futures Trading Commission (CFTC) showed that speculative short positions on the COMEX were close to 9 million ounces (nearly 300 tons). When a large number of stop-loss selling orders were triggered, the price of gold fell, and fund companies took the opportunity to cover profits. When the price of gold rebounded slightly, the hedging forward selling orders from manufacturers suppressed the further rise in gold prices, and at the same time provided funds to fund companies. New opportunities were used to re-establish short selling positions, forming a downward trend in the price of gold at that time.
Gao Jin, Gaossel Gold and Silver R&D Center, said: "The current gold market price trend is not simply determined by market supply and demand, nor is it a simple game between central banks of various countries. Speculative factors also play a large role in the price. "
3. Other factors: (l) The impact of the US dollar exchange rate.
The U.S. dollar exchange rate is also one of the important factors affecting gold price fluctuations. Generally speaking, in the gold market, when the US dollar rises, the price of gold falls, and when the US dollar falls, the price of gold rises. A strong U.S. dollar generally represents a good domestic economic situation in the United States. U.S. domestic stocks and bonds will be eagerly sought after by investors, and the function of gold as a store of value will be weakened; while a decline in the U.S. dollar exchange rate is often related to inflation, a downturn in the stock market, etc., gold's value preservation Functionality is demonstrated again. This is because the depreciation of the U.S. dollar is often related to inflation, and the value of gold is relatively high. When the U.S. dollar depreciates and inflation intensifies, it will often stimulate an increase in the value preservation and speculative demand for gold. In August 1971 and February 1973, the U.S. government twice announced the devaluation of the U.S. dollar. Under the influence of factors such as the sharp decline in the U.S. dollar exchange rate and inflation, the price of gold rose to its highest level in history in early 1980, exceeding $800 per ounce. Looking back at the history of the past 20 years, if the US dollar is strong against other Western currencies, the price of gold will fall in the international market. If the US dollar depreciates slightly, the price of gold will gradually rise.
(2) The monetary policies of various countries are closely related to the international gold price.
When a country adopts a loose monetary policy, due to the decline in interest rates, the country's money supply increases, increasing the possibility of inflation, which will cause the price of gold to rise. For example, the low interest rate policy of the United States in the 1960s prompted the outflow of domestic funds, and a large amount of U.S. dollars flowed into Europe and Japan. As their net positions in U.S. dollars increased, countries became worried about the value of the U.S. dollar, so they began to sell U.S. dollars in the international market, snap up gold, and Eventually led to the disintegration of the Bretton Woods system. However, after 1979, the impact of interest rate factors on gold prices has gradually weakened. For example, in 2005, the Federal Reserve cut interest rates eleven times, but it did not have a very big impact on the gold market. Only the gold market benefited from the "9.11" incident.
(3) The impact of inflation on gold prices.
In this regard, we need to analyze both the long-term and the short-term, and it should be combined with the degree of inflation in the short-term. In the long run, if the annual inflation rate changes within the normal range, it will not have a big impact on the fluctuation of gold prices; only in the short term, if prices rise sharply, causing people to panic, and the unit purchasing power of currency decreases, the price of gold will increase significantly. rise. Although after entering the 1990s, the world entered an era of low inflation, and the role of gold as a symbol of monetary stability has become increasingly smaller. And as a long-term investment tool, gold's yield is increasingly lower than securities such as bonds and stocks. However, in the long run, gold is still an important means of dealing with inflation.
(4) The impact of international trade, finance, and foreign debt deficits on gold prices.
Debt is a global problem that is no longer unique to developing countries. In the debt chain, if the debtor country itself is unable to repay its debt, it will lead to economic stagnation, and economic stagnation will further worsen the vicious cycle of debt. Even creditor countries will face the risk of financial collapse due to the breakdown of relations with debtor countries. At this time, all countries will reserve large amounts of gold in order to protect their own economies from harm, causing the market price of gold to rise.
(5) International political turmoil, war, terrorist incidents, etc.
Major international political and war events will affect the price of gold. The government pays for wars or to maintain the stability of the domestic economy, and a large number of investors turn to gold for value-preserving investment. These will expand the demand for gold and stimulate the rise of gold prices. For example, World War II, the US-Vietnam War, the 1976 Thai coup, the 1986 "Iran-Contra" incident, etc., all caused the gold price to rise to varying degrees. For example, the terrorist organization's attack on the World Trade Center in the United States on September 11, 2001 caused the price of gold to soar to a high of nearly $300/ounce that year
(6) The impact of stock market conditions on gold prices.
Generally speaking, when the stock market falls, the price of gold rises. This mainly reflects investors' expectations for economic development prospects. If everyone is generally optimistic about the economic prospects, a large amount of funds will flow to the stock market, investment in the stock market will be enthusiastic, and the price of gold will fall. vice versa.
In addition to the above-mentioned factors affecting gold prices, the intervention activities of international financial organizations and the policies and regulations of national and regional central financial institutions will also have a significant impact on changes in world gold prices.
(7) Oil price
As a store of value under inflation, gold itself is inseparable from inflation. Rising oil prices mean accomplices will follow, and so will gold prices.