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The gold price is in constant motion as supply and demand shift from minute to minute. Gold is an exchange-traded commodity just like equities. This article helps you understand the characteristics of the gold price and the long-term trends that shape it.

TRACK THE GOLD PRICE HERE

In London, the price is fixed twice daily at set times using the Intercontinental Exchange (ICE) platform. The London fixing holds a special status because it is used as a reference price in many commercial contracts. It is determined at 10:30 and 15:00 London time on every trading day. Anyone wishing to follow the continuously changing gold price should monitor the Globex exchange gold price.

The gold fixing has been in operation since 1919. Following a series of scandals in 2014, the previous telephone-based auction method was reformed. The following banks are authorised to submit bids in the ICE-supervised electronic auction: Barclays, Bank of China, Goldman Sachs, HSBC Bank USA NA, JPMorgan Chase Bank, Morgan Stanley, Societe Generale, Bank of Nova Scotia — ScotiaMocatta, Toronto-Dominion Bank, Standard Chartered, UBS. During the fixing process, participating members also conduct proprietary trading and execute client orders. The key objective is for the chair to find a price at which all orders can be filled within the permitted tolerance of 10,000 ounces.

Once you register with Goldtresor, you can follow the prices of gold, silver, platinum, palladium, and a selection of cryptocurrencies (Bitcoin, Ethereum, Ripple, Bitcoin Cash, Litecoin) around the clock, in real time with second-by-second updates, in three currencies (HUF, EUR, USD). Multiple price chart views are available to support trading.

Goldtresor plans to launch a price page accessible without registration in the near future.

WHAT DRIVES THE GOLD PRICE?

In the short term, the gold price is driven primarily by commercial transactions and exchange-based speculators. The balance of supply and demand shifts continuously and this has an impact on price. Over longer time horizons, international interest rates, inflation expectations, the strength of the US dollar, and the expected returns of bond and equity markets shape the price. In the case of gold, market fear can push prices higher, as gold has always been regarded as a safe-haven asset. On an annual basis, a 12 to 16 percent spread between the minimum and maximum gold price is entirely normal.

The gold price expressed in HUF is also influenced by the USD/HUF cross rate. It is common for gold to weaken slightly against the dollar when the dollar strengthens against the euro — though this is not set in stone, as correlations are constantly shifting.

SEASONALITY IN THE GOLD PRICE

It has long been known among professionals that the annual gold price curve tends to dip in spring and summer. In recent years, two distinct buying windows have been clearly identifiable. One falls precisely around the turn of the year (30 December to 3 January), and the other around the middle of summer (late June to early August).

The first window is explained by the Chinese buying season, which typically begins at the start of the year ahead of the Chinese New Year in February. The summer lull tends to push the gold price lower, usually only to be lifted by Indian traders stocking up for the autumn Indian festive season. It is worth noting, however, that awareness of gold's seasonality is growing, and more investors are timing their gold purchases around the summer window — which has a smoothing effect.

IN WHICH CURRENCIES IS GOLD QUOTED?

The largest volume of international precious metals trading is conducted against the US dollar. In Hungary, however, the best gold price is available in euros or HUF — both are practically equivalent, as dealers must maintain inventory in both currencies. The dollar, the pound sterling, and the Swiss franc are typically exchanged at a few basis points less favourable, as there is no daily turnover or cash position in these currencies.

Some online gold dealers add no spread to the currency conversion associated with gold, effectively transacting at the mid-rate, which in many cases is more favourable than a typical bank rate.

The currency exchange applied by Goldtresor corresponds to the interbank rate — that is, the rate available only to wholesale counterparties — which is substantially more favourable than the rate offered to retail clients by banks or available at street-level exchange bureaux.

LONG-TERM TRENDS IN THE GOLD PRICE

As the debt crisis has dragged on, demand for physical gold has been rising on a structural basis. The principal drivers are far-eastern retail and institutional investors, as well as the central banks of other emerging economies, which are seeking to diversify their reserves and substitute gold for euros and dollars. Beyond this, the low interest rate environment and the desire to hedge against a potential decline in currencies, bonds, and equities are also strongly supporting household accumulation of gold in developed economies.

Gold is reasserting its role as money, and its share of global investment assets is gradually rising. Investor demand for gold is shifting towards direct ownership of physical gold. Whereas in the period 2009 to 2011, the overwhelming majority of gold demand was attributable to exchange-listed securitised vehicles, that trend has since reversed. Investors now prefer to hold physical gold directly.

Gold mine output is not expected to keep pace with rising gold demand, yet in the short term — under normal market conditions — this will not cause a demand shock, as above-ground stocks are many times the size of annual excess demand, and rising prices will encourage stock holders to supply the market.

In the event of a general breakdown in confidence, however, a panic-driven gold rush cannot be ruled out, during which the gold price could take a hyperbolic trajectory — implying a multiple of its current level.

THE PRICE-AVERAGING EFFECT OF REGULAR SAVING

Since timing investments is an extremely difficult task, a strategy of buying gold every month or every quarter may prove effective. When the gold price appears high, it makes sense to reduce the quantity purchased, and vice versa: at lower prices, the quantity can be increased. Investing a fixed sum monthly or quarterly means this averaging occurs automatically. A physical gold account is the appropriate vehicle for implementing a modest monthly gold savings plan.

THE IMPACT OF SCRAP GOLD AND JEWELLERY ON PRICES

The backbone of annual gold demand of around 4,300 tonnes is jewellery consumption of approximately 2,200 tonnes, the vast majority of which originates in the Far East. Scrap gold is generated primarily from the purchase and remelting of used jewellery.

Scrap gold supply typically rises when prices are high, while jewellery demand reacts in the opposite way: it responds positively to a declining gold/USD price. During recessionary periods, scrap gold supply increases as (predominantly lower-income) individuals seek to liquidate the gold jewellery they can most easily convert to cash. The increase in scrap supply is not directly proportional to price rises. A case in point is the period from 2009 to 2011, when despite a near-60 percent rise in the gold price, scrap supply did not grow but levelled off at around 1,600 tonnes per year.