In our series on the gold industry, Everything you need to know about gold and gold companies, we explored 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 assets like equities, bonds, and real estate. In this series, we’ll talk about the factors that impact the attractiveness of holding gold in an investment portfolio.
Gold’s physical demand is influenced the most by China and India. They consume close to half of the gold that’s produced. US macroeconomic factors are very important for determining gold’s price.
Gold price performance
Gold prices have recovered from the low they reached for 2014 of $1,142 per ounce in the beginning of November. Now, they’re trading at $1,198 per ounce. But even this is a decline of 13% from the peak they reached in March 2014. Investors usually view gold as an inflation hedge. As a result, gold prices are influenced by a set of related factors—like the macro-economic outlook for the US and other world economies, performance of alternative assets like equity, bonds, and the US 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 and gold prices. We’ll provide some perspective about the direction gold prices in relation to these key indicators.
Most of these indicators are published monthly. Some of the indicators are reported weekly or quarterly. You should analyze these gold indicators together since many of them are interrelated. They point toward the direction of gold prices 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 (NEM), Kinross (KGC), and ETFs like the Gold Miners Index (GDX).