COMEX Division Spot gold & futures provide an important alternative to traditional means of investing in gold such as bullion, coins, & mining stocks. Gold futures contracts are also valuable trading tools for commercial producers & users of the metal. Commercial concentrations of gold are present in widely distributed areas: in association with ores of copper & lead, in quartz veins, in the gravel of stream beds. Seawater contains astonishing quantities of gold, but its recovery is not economical. Gold has primary correlation with the US dollar & will be used as an alternative hedging tool when the dollar is showing signs of weakness.
The term "carat" is a familiar term. What it represents is the amount of gold contained in the item it describes. "24 carat" is pure gold. Gold is held both as a long term investment & as a short term hedge in times of insecurity or instability in the markets. The cost of gold therefore often becomes more volatile in times of political or economic uncertainty than it does by pure demand/supply dynamics in the underlying physical market. There is a often held conception that, due to non-delivery of physical gold, the possession of gold exceeds the volume of gold that actually exists.
GOLD MARKET INFLUENCES
What influences the cost of gold? Several factors, including the time of year, investor & trader confidence, inflation, fluctuations in the U.S. dollar & U.S. stocks, international political & military tensions, & increases or decreases in the prices of other commodities.
But above all else, the cost of gold is influenced by the U.S. dollar.
While the dollar is no longer backed by gold, gold is bought & sold in dollars. The U.S. dollar is also the world's reserve money. Most international trade is conducted in dollars.
This means that international corporations, & nation states, watch the dollar closely indeed.
So while other factors are always in play, the power behind the scenes can usually be traced to confidence in the U.S. dollar, or lack thereof.
This factor is relevant today, because the economic meltdown over the last 18 months has caused everyone to reconsider the long-term strength & stability of the dollar.