Gold Price (XAUUSD): Live Price Chart

Gold is the most popular precious metal for investment. Investors typically buy gold to diversify risk, often through futures contracts and derivatives. The gold market, like other markets, experiences speculation and volatility. However, gold has proven to be the most reliable safe haven compared to other precious metals across many countries.

Historically, gold has been used as money and served as a standard for currency equivalents specific to various economic regions or countries until recent times. Many European countries adopted gold standards in the late 19th century, though these were temporarily suspended during the financial crises of World War I. After World War II, the Bretton Woods system pegged the US dollar to gold at a rate of $35 per troy ounce. This system lasted until the 1971 Nixon shock, when the US unilaterally ended the direct convertibility of the US dollar to gold, transitioning to a fiat currency system. The Swiss franc was the last major currency to sever its ties to gold in 2000.

Since 1919, the most common benchmark for the price of gold has been the London gold fixing, a twice-daily telephone meeting of representatives from five bullion-trading firms of the London bullion market. Additionally, gold is traded continuously around the world based on the intra-day spot price, derived from over-the-counter gold-trading markets globally (code "XAU").

The following table shows the gold price versus various assets and key statistics at five-year intervals. This provides a detailed view of gold's performance relative to other investment options over time, underscoring its role as a reliable store of value and a hedge against economic uncertainties. The price of gold is a crucial indicator for investors looking to safeguard their wealth and navigate the complexities of the financial landscape.

Influencing Factors

Supply and Demand Dynamics

Like most commodities, the price of gold is driven by supply and demand, including speculative demand. However, unlike most other commodities, the factors of saving and disposal play a larger role in affecting its price than its consumption. Most of the gold ever mined still exists in accessible forms, such as bullion and mass-produced jewelry, which often hold little value over their fine weight. This means gold remains nearly as liquid as bullion and can easily re-enter the gold market. At the end of 2006, it was estimated that all the gold ever mined totaled 158,000 tonnes.

Given the substantial quantity of gold stored above ground compared to the annual production, the price of gold is primarily influenced by changes in sentiment, impacting market supply and demand equally, rather than changes in annual production. According to the World Gold Council, annual mine production of gold in recent years has been close to 2,500 tonnes. About 2,000 tonnes go into jewelry, industrial, and dental production, while around 500 tonnes go to retail investors and exchange-traded gold funds.

Central Banks' Role

Central banks and the International Monetary Fund play a significant role in influencing the price of gold. At the end of 2004, central banks and official organizations held 19% of all above-ground gold as official gold reserves. The ten-year Washington Agreement on Gold (WAG), starting in September 1999, limited gold sales by its members (Europe, United States, Japan, Australia, the Bank for International Settlements, and the International Monetary Fund) to less than 400 tonnes a year. In 2009, this agreement was extended for five years, with a limit of 500 tonnes per year. European central banks, such as the Bank of England and the Swiss National Bank, have been key sellers of gold during this period. In 2014, the agreement was extended for another five years at 400 tonnes per year. In 2019, the agreement was not extended again.

Although central banks do not generally announce gold purchases in advance, some, like Russia, have expressed interest in increasing their gold reserves since late 2005. In early 2006, China, which only holds 1.3% of its reserves in gold, announced it was seeking ways to improve returns on its official reserves. Some bulls hope that this indicates China might reposition more of its holdings into gold, aligning with other central banks. Chinese investors began pursuing gold investment as an alternative to the Euro during the Eurozone crisis in 2011, and China has since become the world's top gold consumer as of 2013.

Macroeconomic Variables

The price of gold can be influenced by various macroeconomic variables. These include the price of oil, the use of quantitative easing, currency exchange rate movements, and returns on equity markets.

Hedge Against Financial Stress

Gold, like all precious metals, may be used as a hedge against inflation, deflation, or currency devaluation, though its effectiveness as such has been questioned. Historically, gold has not consistently proven to be a reliable hedging instrument. A unique feature of gold is that it has no default risk, making it a distinct asset in times of financial stress.

Gold Bars

Investing in gold bars is a traditional method of acquiring gold, with countries like Canada, Austria, Liechtenstein, and Switzerland making it easy to buy and sell through major banks. Gold bars come in various sizes, such as the 400 troy ounces standard in Europe and 1-kilogram bars. While gold bars often have lower price premiums compared to coins, they carry a higher risk of forgery. The London bullion market ensures a verifiable chain of custody for Good Delivery bars, facilitating their secure trading.

Gold Coins

Gold coins are a popular way to own gold, priced based on their fine weight plus a small premium. Bullion coins come in sizes ranging from 0.1 to 2 troy ounces, with the 1-ounce size being the most common. The Krugerrand is the most widely held bullion coin, with other popular options including the Australian Gold Nugget, Austrian Philharmoniker, and American Gold Eagle.

Gold Rounds

Gold rounds resemble coins but do not have currency value. They come in similar sizes to coins and often have lower overhead costs due to the absence of added metals for durability. This makes them a cost-effective option for those looking to invest in gold.

Gold Exchange-Traded Products

Gold exchange-traded products (ETPs), such as ETFs and ETNs, offer exposure to gold prices without the need to store physical bars. The first gold ETF, Gold Bullion Securities, launched in 2003, and SPDR Gold Shares is a notable example. While ETPs simplify gold investment, they carry risks beyond the inherent value of the precious metal itself.

Gold Certificates

Gold certificates provide a way for investors to avoid the risks and costs associated with storing physical bullion. Banks issue certificates for allocated or unallocated gold, with allocated certificates linked to specific numbered bars. However, these certificates come with their own set of risks that investors need to consider.

Gold Accounts

Gold accounts, offered by various banks, allow investors to buy or sell gold similarly to foreign currency. These accounts can be allocated (fully reserved) or unallocated (pooled), with significant differences in the account holder's claim on the gold. Allocated accounts provide specific ownership of physical gold, while unallocated accounts represent a claim on a pool of gold.

Derivatives, CFDs, and Spread Betting

Gold derivatives, including futures and options, are traded on various exchanges globally. In the US, gold futures are primarily traded on the New York Commodities Exchange. While derivatives offer leverage, they also increase the risk of capital loss, making them a higher-risk investment option.

Gold Mining Companies

Investing in gold mining companies provides exposure to gold prices through company shares. These shares can be volatile due to factors like operational issues, mismanagement, and market conditions. Some companies hedge gold prices to reduce volatility, but this can also impact the potential returns for investors.

Fundamental Analysis

Fundamental analysis in the gold market involves a comprehensive evaluation of the macroeconomic environment. Key factors include GDP growth, inflation rates, interest rates, and energy prices. Additionally, analyzing the global supply and demand dynamics for gold is crucial to understanding its market behavior and potential future trends.

Gold Versus Stocks

Gold is often compared to stocks as a form of investment. Stocks are typically seen as vehicles for growth, offering the potential for significant returns over time. In contrast, gold is viewed as a store of value, providing stability and a hedge against economic uncertainty. Historically, stocks have generally outperformed gold, benefiting from stable political climates and strong property rights that promote business growth and profitability.

Using Leverage

Investors may use leverage to enhance their positions in gold, borrowing against existing assets to trade gold derivatives or unhedged mining shares. While leverage can amplify potential gains, it also significantly increases the risk of loss. This approach requires careful consideration and risk management to avoid substantial financial setbacks.