Discussion on Factors Influencing the Gold Price
Yu Cai
North China Electric Power University, Beijing, China 102206
Keywords: Gold Price, Price System, Related Factors, Investment Strategies
Abstract. In Labor Day Golden Week, 2013, the Wall Street shot short gold, gold price fell 20 percent and the world#39;s outcry. 'Chinese Mother' swept the 300 tons of gold with 100 billion Yuan, making 'Golden Week' became a veritable 'gold rush week”. Gold has commodity, currency and financial attributes, but also a symbol of the assets, so there are many factors that affect its price. In this context, the author discussed the gold price fluctuations. From analysis of system of gold price, the author discussed the factors that affect the gold price fluctuations, and thus gave relevant investment strategy advice.
1. Introduction
Daily international price of gold is floating, generally taking the London gold market as a standard, with opening price, median price and closing price. China multi-use London Market as the daily closing price of gold and silver coins denominated export prices. Before the 1970s, the basic price of gold is determined by governments or central banks, and international gold prices are relatively stable. Since early 1970s, it is no longer directly linked to the U.S. dollar. Gold prices are gradually influenced by the market and the main factors affecting the price of gold is also increasing. In this paper, in terms of market supply and demand seasonality, the dollar index, the international crude oil prices, inflation, stock market volatility and political factors the author analyzed gold prices.
2. The construction of international gold market price system
2.1 Market price
Market price includes spot and futures prices, both connections and differences. The two prices are subject to supply and demand with various changes and complex price determination mechanism. In general, the impact of factors like spot and futures prices is similar and therefore both the direction and magnitude of changes are basically the same. Spot prices and futures prices traded roughly equal. In theory, the futures price should be stable to reflect the spot price plus the cost of ownership of a specific delivery period. Therefore, gold futures prices should be higher than the spot price, and forward futures price should be higher than the recent futures prices, while basis (difference between gold spot price and futures price) is negative. Meanwhile, we noticed that many objective factors and human impact result in a certain degree of distortion of relations between the two prices.
2.2 Production prices
Producer prices are to establish a fixed price significantly above the market price stable foundation based on production costs. Currently, the gold mining slightly below the average total cost of about $ 260 per ounce (1986, South African gold production cost is approximately $ 258 per ounce). As technology advances, the cost of prospecting, mining, refining and other processes are gradually reducing and mining costs are declined.
2.3 Quasi-official price
This is a price used for central banks and official activities and the use of gold .In the quasi-official prices, it is divided into mortgage rates and billing rates. The total reserves of central banks around the world has the amount of official (national central banks tend to be the largest holder of gold in each country) in 1998 of about 34,000 tons. Calculated by current production capacity, this is equivalent to 13 years of world mine production of gold, which is 24.7% of the total stock of gold of 137,400 tons, which is an important reason for determining quasi-official gold price.
3. Gold price volatility factor
3.1 Gold price and the gold spot market seasonal supply and demand factors
The most basic factors affecting the price of gold are gold supply and demand conditions. The oversupply will lower prices and vice versa. Supply is mainly in three aspects: First, regular supply, the amount of gold provided by the gold-producing countries; Second, induced supply, supply caused by a certain factor induced; Third, the regulation of supply, including a variety of institutions and individualsrsquo; selling gold amount. Demand also has three aspects, one manufacturing needs, such as industry demand for all kinds of jewelry industry; second, the demand for reserves, in order to counteract inflation; Third, investment and speculative demand, speculators create a false impression of the situation to demand for gold. Therefore, the gold spot market tends to have a relatively strong seasonal demand and supply rule. For example, after this short gold of Wall Street, 'Chinese Mother' has a strong buy gold, which is in line with the above analysis.
3.2 Gold price and the U.S. dollar index
International gold market is mainly priced in U.S. dollars so the dollar price of gold has a high negative correlation. U.S. dollar influence of gold is following three reasons: first, U.S. dollar is the cornerstone of the current international monetary system. The dollar and gold are the most important reserve asset, so strong and stable dollar weakened position on gold reserves and preservation functions; second, the United States remains the worldrsquo;s economic superpower, impacting world economy, and the relationship between the price of gold is generally inversely proportional to the quality of the world economy; third, the world gold market are generally denominated in U.S. dollars, so the dollar will inevitably lead to rising gold prices. For example, at the end of 20th century the price of gold came down to a valley. People have
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