Why it’s important for investors to monitor gold prices


Nov. 26 2019, Updated 7:25 p.m. ET

Gold prices are under pressure

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.

Performance of GLD

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 to determine gold’s price.

Gold’s price performance

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Gold prices are down 12%—from the peak of $1,385 per ounce. The peak was reached in March. However, it recovered somewhat from its low in early October of $1,195 per ounce. Currently, it’s trading at $1,230 per ounce. The above chart shows the performance of the SPDR Gold Shares ETF (GLD). GLD tracks the spot gold price.

Factors influencing gold prices

Investors usually view gold as an inflation hedge. As a result, the gold prices are influenced by a set of related factors:

  • 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
  • inflation

On the supply side, we’ll discuss the gold mine production. We’ll also discuss the factors that impact gold mines.

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

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.

They indicate share prices for companies like Goldcorp Inc. (GG), Barrick Gold Corp. (ABX), Newmont Mining Corporation (or NEM), Kinross (or KGC), and exchange-traded funds (or ETFs) like the Gold Miners Index (GDX).


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