What is the price of Gold?

We are often asked, what is the price of Gold and what drives it up and down? 

First off the price of Gold is set by London Over-the-Counter (OTC) spot gold market trading and COMEX gold futures trading. It means international gold prices are set by paper gold market, and not by physical gold market. One should understand that supply and demand for physical gold plays no role in setting the gold price in COMEX and London OTC markets. Other markets such as Shanghai Gold Exchange (SGE), Multi Commodity Exchange (MCX) and even physical gold markets worldwide are predominantly price takers, that take in and use the gold prices established by the paper gold markets in London and New York.

Overall the price of gold is moved by a combination of supply, demand, and investor behavior. Investors do not have to handle physical gold to buy and sell, so trading behaviors can take over the price much more quickly. Certainly, during times of economic crisis and war, investors flock to gold and drive up the price.

Unlike oil or coffee, gold isn't consumed. Almost all the gold ever mined is still around and more gold is being mined each day. If so, one would expect the price of gold to go down over time, since there is more and more of it around. So, why doesn't it? Aside from the fact that the number of people who want to buy it is are constantly on the rise, jewelry and investment demand offer some clues as once purchased they sit for many years in a persons possession.

The take away from this information is that gold is a commodity that isn't tied to anything else; in small doses, it makes a good diversifying element for any portfolio.