Gold’s key indicators—why gold’s price could decrease more

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Gold dynamics

In our series on the gold industry, we discussed why gold is different from other commodities. It can’t be “consumed” in the traditional sense of the word. This also impacts gold’s supply dynamics. Gold’s price depends on the valuation of other assets. It also depends on the difference between data in the U.S. and the rest of the world.

Gold’s physical demand is influenced the most by China and India. They consume close to half of the gold that’s produced. U.S. macro-economic factors are very important for determining gold’s price.

Gold YTD Performance

Gold price performance

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Gold prices have declined 12%—from the peak of $1,385 per ounce. The peak was reached in March. In 2014, gold is currently trading at its lowest levels. Investors usually view gold as an inflation hedge. As a result, the gold prices are influenced by a set of related factors—like macro-economic outlook for the U.S. and other world economies, performance of alternative assets like equity, bonds, and the U.S. dollar (or USD), interest rates, and inflation. On the supply side, we’ll discuss the gold mine production and the factors that impact them.

Later in this series, we’ll discuss each of these broad indicators and the factors that influence the indicators. The factors influence gold’s price. We’ll provide a perspective about the direction of gold’s price in relation to all the indicators.

Holistic view 

Most of these indicators are published monthly. Some of the indicators are reported weekly or quarterly. The indicators should be analyzed together. Many of them are inter-related. They point toward the direction of gold’s price and gold-backed exchange-traded funds (or ETFs) like the SPDR Gold Shares (GLD). They also indicate share prices for companies like Goldcorp Inc. (GG), Barrick Gold Corp. (ABX), Newmont Mining Corporation (or NEM), Kinross (KGC), and ETFs like the Gold Miners Index (GDX).

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