How do gold prices work?
The gold market is unique and must be well known when deciding to invest, even if it is the refuge asset par excellence. For example, its quotation is often against the trend compared to the financial markets, but there is no lack of cases, as happened in the first months of the lockdown in 2020, when the two indices, financial and gold, travelled in the same direction.
In fact, gold is in all respects a financial instrument whose price is set almost exclusively in the stock markets of London, New York and Shanghai, and only to a much lesser extent, almost negligible, do the exchanges that take place in the physical markets (bars, coins, used gold, etc.) have an impact on prices.
Let us start with a basic concept of economics with which we are all familiar: that of supply and demand. To oversimplify, when the demand for a good exceeds supply, the price of that good rises; conversely, when there is a greater supply than consumer demand, the price tends to fall. How does this law affect the value of gold? Or does it affect it only marginally?
First of all, don't confuse quotation and price of gold: while the price can be easily known by consulting the charts of the world's economic centres, the quotations are established through the Fixing which has its historical seat on the London market and which establishes a quotation based on supply and demand while also trying to maintain a balance based on market trends.
The gold market opens daily at 10.30am and ends at 3pm. From the earliest moments, the various movements of supply and demand set the price, but the opening and closing quotation represents a globally controlled, clear and transparent fixed point to safeguard market participants. Fixing is carried out twice a day and is based on the 3 most important currencies in the world, namely the euro, the pound and the dollar. The actual quote is then passed on to the historic London Bullion Market, which then sets the price that is communicated to each investor.
It is precisely this certain and shared mechanism on all world markets that makes gold so stable and perfect for those who want to invest and secure their savings.
Did you know that... according to the WGC (World Gold Council), in 2019 jewellery accounted for half of the world's physical gold demand (2,192 tonnes), bars and coins one-fifth (877 tonnes), central banks' allocation 15% (658 tonnes), ETFs one-tenth (438 tonnes).