Any market price is mainly affected by supply and demand, and gold is no exception.
Before the 1970s, the price of gold was basically determined by governments or central banks of various countries, and the price of gold was relatively stable internationally. In the early 1970s, the price of gold was no longer directly linked to the U.S. dollar. The price of gold gradually became market-oriented, and the factors affecting gold price changes were increasing. Specifically, they can be divided into the following aspects:
1. Supply factors :
The main factors on the supply side are:
(1) Gold stock on the ground
There are currently about 137,400 tons of gold in the world, and the stock of gold on the ground It is still growing at 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 then Affects world 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. %, and by 1998 the official gold reserves were 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 gold inventory reserves 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 advancement of technology 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 been affected by the financial crisis. Gold imports have been greatly reduced since 1997. 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%.
(2) The need for value preservation.
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, as gold provides insurance relative to 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 U.S. balance of payments deficit trend, 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.
Speculators take advantage of the fluctuations in gold prices in the gold market and the trading system of the gold futures market to "short sell" or "replenish" gold in large quantities based on international and domestic situations, 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 gold prices at that time.
3. Other factors:
(l) The impact of the U.S. dollar exchange rate.
The U.S. dollar exchange rate is one of the important factors affecting gold price fluctuations. Since the international gold market price is priced in U.S. dollars, an appreciation of the U.S. dollar will cause the price of gold to fall, and conversely will push it to rise.
However, during certain special periods, especially when the trend of gold is very strong or very weak, the price of gold will also get rid of the influence of the US dollar and go out of its own trend. There has been an 80% inverse correlation between gold prices and the U.S. dollar over the past decade.
. Generally speaking, in the gold market, if the US dollar rises, the price of gold will fall; if the US dollar falls, the price of gold will rise. 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, the Federal Reserve’s eleven interest rate cuts this year 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.
This requires long-term and short-term analysis, and it must 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 have little 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, a global problem, is no longer unique to developing countries. In the debt chain, not only are the debtor countries themselves unable to repay their debts, leading to economic stagnation, and economic stagnation further worsens 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, 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 U.S.-Vietnam War, the 1976 Thai coup, and the 1986 "Iran-Contra" incident all caused gold prices to rise to varying degrees. For example, the terrorist organization's attack on the World Trade Center in the United States in September this year caused the price of gold to soar to a high of nearly $300 this 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.
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 supply and demand Since the world's major oil spot and futures prices are priced in US dollars, the rise and fall of oil prices on the one hand reflect the world's oil supply and demand, on the other hand it also reflects changes in the US dollar exchange rate. changes in the inflation rate. Oil prices and gold prices indirectly affect each other. After comparison, it was found that there is a positive correlation between the rise and fall of international gold prices and oil prices more often.