Why Gold is Such a Valuable Commodity

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Over the centuries, gold has proven to be a top asset for governments, countries and individuals wanting to preserve their wealth and use it as a conservative safe haven. Even though its value far outweighs its ability to be used in applications, gold continues to be the most popular of the precious metals to purchase.

While it is used in jewelry, dentistry and electronic products, it’s difficult to justify its value solely based on industrial uses of the metal.

Precious metals, such as platinum, palladium and silver, have a wider variety of industrial applications.

One factor keeping gold at the top of the heap is its scarcity. Discovering new deposits is becoming more challenging, which also contributes to gold’s value.

Examining Spot Gold Prices

Understanding more about the value of gold can be done by examining the price movement of this precious metals commodity.

Most trading platforms abbreviate gold as the symbol “XAU.” Typing this symbol into a trading platform provides the current spot gold price.. (You can also find the current spot price simply by doing an online search.)

The “spot” price is the current price for one Troy ounce of gold. The price fluctuates throughout the day.

What Moves the Price of Gold?


Factors that move the price of gold include supply and demand, economic data, central bank policies and the demand for financial vehicles investing in gold.

As with all commodities, geo-political factors and disasters can also move the price. For example, a mining strike or the pandemic shutdowns of mines are two examples of events with the potential to alter supply and demand, and therefore, price.

Since 1972, the value of gold has increased by a factor close to 46. This means that the price of gold has risen from $43 an ounce to a record high just above $2,000 in 2020. Supply and demand is one of the main catalysts fueling this change.

When the value is high and profitability has increased, this typically results in more mining and a greater supply.

The opposite occurs if prices decline. Changes in demand can also be influenced by the investment decisions of sovereign wealth funds, central banks, traders, and industrial demands.

Central Bank Policies Affect Gold Prices

Gold and fiat currencies constantly battle for attention from investors. Central banks have a significant amount of influence in the decision-making process to store wealth in gold or a currency like the euro or US dollar.

 If central banks decide to “print” more currency, the value of that currency depreciates. Individuals holding paper currencies become aware of this and often turn towards gold in the belief that it serves as a safe haven.

Economic Data Can Cause Fluctuations in Gold Prices

Economic data, such as GDP or employment numbers, will also drive gold prices higher or lower, based on the strength or weakness of each number.

Higher gold prices may reveal the state of the economy’s health. In the United States, if the price of gold is rising, it can indicate inflation or the makings of an economic crisis.

Gold’s Role in Financial Vehicles

Gold-related ETFs can also affect the demand for this precious metal. Some trading vehicles require the purchase of physical gold and its storage to backup the assets.

Money flowing into these types of bullion-backed ETFs can require an increase in purchases to meet the requirements set by the fund.

Where Is Gold Found?

Gold has been extracted from every continent except Antarctica. Finding it and implementing the mining process can be challenging, time-consuming and expensive.

Yet, exploration ventures continue to hunt for gold each year due to the rewards that can be reaped financially.

Main Uses of Gold

After gold has been mined, it’s refined and used in different applications. Two of the most popular are jewelry and gold bars or coins designed for collectors. There are many industrial applications of gold as well, due to its conductive properties and resistance to corrosion. Many of these applications are found within electronics, from high-end audiophile components to larger appliances.

Sovereign wealth funds and central banks also use gold as a way to instill confidence in their specific currency by holding the metal as a reserve.

Summary

Gold has been sought for centuries as a status symbol and as protection against economic catastrophes.

Then, as now, the ultimate value of gold is measured by the individual buyer or investor.

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