The Price of Gold

Like all commodities and assets, the price of gold is determined by the law of supply and demand. The underlying forces that contribute to the resultant supply and demand of gold comprise the fluctuation of foreign exchange rates, inflation, interest rates and geo-political conditions.

As shown in the charts above, gold price has had its ups and downs. But it has largely retained its status as an inflation hedge. In the 1990’s to current, its price has performed well and has proven to be an asset class that cannot be missing from serious investors’ long term portfolio. The chart above shows that gold price has appreciated in the last 15 years while the trade-weighted dollar has performed miserably.

Longer term, gold price has fluctuated between $100/oz in 1977 to above $700/oz in 1980 before trading between $300/oz and $500/oz for almost 3 decades before it finally had another bull run in the last five years; more recently, we saw it breaking above $900/oz touching its historical high price of $1002.80 before correcting back down.

With the kind of ranges, swings and volatility we have seen in gold’s price, it is no wonder that trading in gold, let alone investing in it, can be exciting yet treacherous. However, it can be exciting if investors and traders learn to respect the signs and signals of the gold market. Jim Rogers, in his book “Hot Commodities”, wrote “Oil may be the commodity that dominates the news, not to mention the commodity indexes, but no other asset has the mystique and popular appeal of gold.”