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What Moves the Gold Futures Prices?

gold price study

Gold Futures Prices

Gold Futures Prices

Most traders like to keep an eye on gold futures prices in US dollars per troy ounce, on the COMEX exchange. Shown below is a gold price chart displaying the gold futures prices for the past 10 years.

NYMEX stands for the New York Mercantile Exchange, which is the world’s largest physical commodity futures exchange, dealing with billions of dollars worth of metals, energy products, oil and many other commodities, bought and sold on the trading floor.

COMEX and NYMEX were once separately owned exchanges, but now they are merged.

Spot Gold Price vs Gold Futures Prices

There is a difference between the gold spot prices and the gold futures prices. The gold futures prices are representative of the amount to be paid on the delivery date of the gold in the future.  They are used for futures contracts.  Typically, the gold futures prices are higher than the spot prices. 

The difference between the spot price and the future price is the ‘forward rate’, which is reflected as an annual percentage rate.  The difference is calculated by remaining number of days to the delivery contract date, interest rates and the strength of the market demand for immediate actual delivery.

gold point and figure chart

Major Gold Producing Countries

In 1970, the production of gold coming out of South Africa was measured at 79% of the world supply. For approximately one hundred years, South Africa was considered the largest producer of gold, until 2007, at which time China took the lead and now in 2011, the top producers are China, Russia, South Africa, Australia and USA.

China, Russia, India and the Philippines are all holding gold, as the central banks demand more, with surplus liquidity in the emerging markets, including the Middle East, such as Saudi Arabia.

Daily Gold Prices (COMEX)

Gold as a Currency

There is some discrepancy about whether gold is a commodity or currency.  However, when the gold futures price was at yet another high in trading, commodities expert analyst, Suki Cooper was quoted as saying to CNBC: ‘Gold is behaving not just as a commodity right now, it’s really behaving as a currency.’

The price of gold will rise for the following reasons: economy, fear, demand, inflation and the dollar.  When the economy is unstable or threatens to crash, fear sets in.  This pushes the demand for gold and as a result gold price escalates.

Inflation and the national debt causes the dollar’s worth to decrease.

Gold as Inflation Hedge

Since gold is considered an inflation hedge, it is not purchased if deflation is looming.  If that were the case, paper currency would increase in value and the result would mean a fall in the gold price.  Inflation, war and the bear market are all intervening forces that affect gold price.

The bear market is a decline in the stock market over a period of time.  No one agrees on an absolute definition for the bear market, albeit a price decline of 20% (or more) over a 2 month period is acknowledged as a valid definition.

The Great Depression caused people to start hoarding gold.  In order to fight deflation, in 1933, Roosevelt devalued the dollar and fixed the gold price at $35/oz.  This attracted foreign buyers, which caused the United States to corner the gold market globally.

Gold Futures Prices Forecast

As of December 2010, the United States is holding 9,300 tonnes of gold which is 73.9% of its national forex reserves. It would be interesting to see what they would announce in the news to keep the gold futures prices from going down in the long term.

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