Gold prices are set by several banks, a supervisory committee and a panel of internal and external presidents, who calculate the figures based on supply and demand in the gold futures derivatives markets and establish averages for both the spot price and the fixed price. Monetary policy controlled by the Federal Reserve is perhaps one of those that most influence the prices of gold in real time in the market. Interest rates have a significant influence on gold prices due to a factor known as opportunity cost. Opportunity cost occurs when profits that are guaranteed in an investment are forfeited because of the possibility of obtaining even more significant benefits from another investment.
Gold production is another important factor that significantly influences gold prices. China, Australia, Russia, the United States, Canada and Indonesia are the countries that produce most of the world's gold. While gold production has increased around the world to meet demand, gold is a limited resource. Profitable gold mining is rapidly running out, which will drive up gold prices in the future.
In addition, because it does not corrode easily, it is used in the manufacture of various types of high-precision electronic devices and components, such as circuit boards, capacitors, and cell phones, just to name a few. The investment niche also occupies another large part of gold production. Since there has been no alternative to gold in any of these sectors, it will continue to enjoy high industrial demand. It is common for gold prices to be negatively correlated with the value of the currency and, more specifically, with the US dollar.
What this means is that when the value of the dollar is high, the price of gold remains relatively flat. However, it will become more expensive in other countries where the value of their currency has fallen. This weakening in demand further lowers the price of gold in the US. UU.
While ETFs don't have a significant influence on gold prices, they are worth mentioning. ETFs buy or sell physical gold in the form of ingots or coins on demand. The price of gold is affected, as ETFs buy and sell gold depending on the prevailing market. This will have a definite positive turn in the price of gold.
The price of gold is generally inversely related to the value of the United States dollar because the metal is denominated in dollars. All else being equal, a stronger U.S. dollar tends to keep the price of gold lower and more controlled, while a weaker U.S. dollar is likely to drive up the price of gold due to increased demand (because you can buy more gold when the dollar is weaker).
In 1968, several countries that dominated the global supply of gold decided to stop selling gold on the London market, allowing the market to determine the price of gold. According to the gold standard, the money supply is directly linked to the supply of gold, which means that, during the First World War, many countries decided to temporarily suspend the gold standard in order to be able to print money to pay for their military participation in the war.