Gold has always been considered a valuable precious metal. It has also become one for many analysts, investors and experts Haven value for moments of crisis, and most importantly, it was rated as an excellent Investment opportunity, safe, and future-oriented in times of economic indecision.
Gold is one of the most valuable commodities in the world and is used to make components for mobile phones, jewelry, or even to measure a country’s wealth.
The gold market is complex, and that is why it is important to know its background, how it works, and its value if we want to invest in this commodity. But how does the market for this precious metal work at the moment? How does the price vary? In what types and forms can this metal be purchased? How is the price determined?
How is the price of gold determined?
To understand the process of setting the price of gold in the market, we have to go back more than a hundred years. On September 12, 1919, in London, the price of gold was first and officially fixed at the offices of NM Rothschild.
Currently, the process has changed for proper nouns, but the mechanism is virtually identical. Exactly 104 years ago, the price of this precious metal was reported directly to the London Gold Fixing Association, where five major bankers and members set the price of the metal up to twice a day and by phone.
The first prize was set at 10:30 a.m. and the second at 5:00 p.m. At that time, the President announced the price according to the market situation, and the members shared it with their customers. It has rained since then, and in 2015, the London Gold Fixing was replaced by The London Bullion Market Association (LBMA) price of gold.
However, despite the change in organization, the process remains the same: the price of gold is fixed in dollars twice a day, at 10:30 a.m. and later at 3:00 p.m., although the decision is influenced by its own market price. And it’s like it happens with silver A few determining factors affect the price set, such as mining, economic and political uncertainty, demand from sectors that work directly with metals, such as jewelry, and interest rates.
Gold market numbers today
The world gold market is trading at about $200 billion a day, although this value can be significantly higher depending on periods of higher volume. Over 60% of business volume is OTC in London, 30% in New York futures, 7% in Shanghai futures, 2% in gold ETFs, and 15% in jewelry, bullion, and physical currencies.
Currently, gold is trading below $2,000 an ounce. In the first half of 2023, gold prices were up 10%, skyrocketing in early May to hit record highs, close to the $2,067 mark in March last year.
For the remainder of the year, rates are now forecast to rise another 25 basis points in July, only to stop later. However, market expectations are evolving in line with safe-haven demand, which varies depending on global economic developments and factors such as inflation, growth, and currency fluctuations.
The Gold Reserve of the Bank of Spain
The Bank of Spain has a vault in its 2,500 m2 and 35-meter deep vault Reserve of 281 tons of gold, equivalent to approximately 14,000 million euros, which corresponds to 1% of Spanish GDP.
Although bulky, it is a tiny amount when compared to countries like the US at 8,133 tons, Germany at 3,355 tons, Italy at 2,452 tons, France at 2,437 tons, Russia at 2,327 tons, or China at 2,068 tons. Spain includes Austria with 280 tons, Thailand with 244 tons, Poland with 229 tons, and Belgium with 227 tons.
But the situation on the reservation has not always been the same. In 2000, Spain had a reserve of 525 tons of gold, an amount maintained until 2004, when the Bank of Spain sold it. Thus, the Spanish gold reserves fell between 2004 and 2007 by half to 281 tons.