Instead of holding gold, investors could be lending it (or the cash spent) out. The most important are the opportunity costs for foregone interests. But these expenses are not the main costs. Some costs are clear: storage and insurance of gold. Holding the yellow metal in a portfolio is not an exception here. Why do the real interest rates matter for gold? Well, resources are scarce. Let’s analyze them.ĭiagram 1: Golden Triad of Gold’s Drivers. It’s the Golden Triad of Gold’s Drivers (see the diagram below). dollar, and the risk aversion (although its less seen in the data). Our research has shown that the most important elements in the gold’s puzzle are: the real interest rates, the U.S. Similarly, the precious metal market seems to be very emotional and without any logic, but when you look closely, you will discover important forces in action. It seems to be empty space – but gravity works there. Actually, there are some important fundamental drivers at work.

Market sentiment is powerful in the precious metals market – but the same applies to other markets (after all, humans are emotional creatures). But it doesn’t mean that the price of gold changes randomly. It does not generate any cash flows, which we could discount. There is also the use of gold in industry for such things as electronics and medical devices.

In 2017, 46% of demand for gold was for jewelry. The chief areas of gold demand are in gold jewelry. When gold demand outstrips gold supply, the price of gold goes up. There is only so much gold to be mined and gold mining is not cheap. Supply and demand, of course, also play a key role in the price of gold per gram or ounce. Gold prices are historically far more stable over the course of time than economies and other classes of investments. All of this is due to the “safe haven” status gold has traditionally had in the investment world. Related, the strength of major economies also has an inverse relationship to the price of gold - at least when an economy has a significant downturn. In other words, when the value the US dollar is strong, gold prices go down. Traditionally gold has an inverse relationship to the value of the dollar. Chief among these factors is the strength of the US dollar. There are many factors that contribute to the current price of gold.

Us gold coin prices