Why is Gold Valuable?
Gold has occupied a unique role in the financial systems of cultures worldwide. Unlike other precious metals like silver, platinum, and palladium, gold has value far beyond its applications in industry. While business sectors including dentistry, electronics, and jewelry use gold in their products, there is simply not enough commercial demand to explain the very high price markets assign to the yellow metal. However, the high price is no mystery. Since the beginning of civilization, humankind has viewed gold as a proxy for money and a safe-haven asset. This reality has made it one of the most fascinating and misunderstood commodities.
What Drives the Price of Gold?
According to the World Gold Council, the annual volume of gold production has tripled each year since the early 1970s, while the amount of gold purchased each year has quadrupled. The price of gold has risen from around $43 per ounce in 1972, the first year that private ownership of gold became legal again, to its price of over $1,500 today.
There are several common factors that typically move the price of gold:
- Supply and demand
- Central bank policies
- Economic data
- Demand for financial instruments that invest in gold
- Supply and Demand
As with any commodity, the balance between output and market demand determines price levels. When supply levels diminish, prices tend to go up. Factors such as political unrest in countries with large gold mining projects or increases in mining input costs (such as the price of oil) can constrain supply. On the other hand, discoveries of new gold deposits or declines in input costs can increase supply.
Ironically, one factor that consistently affects supply is the price of gold itself: When gold prices increase, mining gold becomes more profitable, so more supply comes on to the market. The opposite happens when prices decline. Similarly, changes in demand from industry, traders, central banks, or sovereign wealth funds can move gold prices.
Where Does Gold Come From?
Miners extract gold from the ground on every continent except Antarctica.
How Much Gold Has Ever Been Mined?
The supply of above-ground gold is limited, so gold deposits are difficult to find. Plus, extracting the metal from gold mines is an expensive and time-consuming endeavor. Interestingly, gold isn’t just in the ground. Ocean waters hold approximately 20 million tons of gold – which amounts to more than has ever mined. However, each liter of seawater only contains about 13 billionths of a gram of gold. Yes, billionths. There is no getting away from the fact that gold is rare. According to the World Gold Council, the total supply of gold in the world is around 197,576 metric tons – more than the orbiter of NASA’s Space Shuttle. If all of the gold that’s ever been mined were to be combined into one large cube, it would measure only 21 meters square. That’s a bit less than the length of a tennis court or five stories on each side.
Top Gold Producing Countries
For many years, South Africa was the dominant gold producer in the world. It now struggles to maintain its position in the top 10 as geographically larger countries like China and Russia have increased production.
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