The term ‘carat’ will be familiar to many – 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 and as a short term hedge in times of insecurity or instability in the markets. The price 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 commonly held conception that, due to non-delivery of physical gold, the ownership of gold exceeds the volume of gold that actually exists.
COMEX Division Spot gold and futures provide an important alternative to traditional means of investing in gold such as bullion, coins, and mining stocks. Gold futures contracts are also valuable trading tools for commercial producers and users of the metal. Commercial concentrations of gold are found in widely distributed areas: in association with ores of copper and 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 and will be used as an alternative hedging tool when the dollar is showing signs of weakness.
Gold Market Influences
What influences the price of gold? Several factors, including the time of year, investor and trader confidence, inflation, fluctuations in the U.S. dollar and U.S. stocks, international political and military tensions, and increases or decreases in the prices of other commodities.
But above all else, the price of gold is influenced by the U.S. dollar.
While the dollar is no longer backed by gold, gold is bought and sold in dollars. The U.S. dollar is also the world’s reserve currency. Most international trade is conducted in dollars.
This means that international corporations, and nation states, watch the dollar very 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 particularly relevant today, because the economic meltdown over the last 18 months has caused everyone to reconsider the long-term strength and stability of the dollar.