What drives the gold price?

As is true of all asset prices, gold’s price moves in response to the changing balance between supply and demand.  Therefore, an understanding of gold price drivers is inextricably linked to a clear grasp of the factors that drive the fundamentals of the gold market.  Here we provide a guide to the factors that contribute to changes in jewellery, investment and industrial demand for gold.

Gold is a real asset.  The gold market may take some time to adjust to a supply shock or a sudden shift in demand.  Supply from mine production is relatively inelastic in the short run and it typically takes several years to bring a mine on-line.  Because most of the supply from central bank sales is regulated by the current Central Bank Gold Agreement, this source is also effectively inelastic beyond the annual ceiling of 500 tonnes.  This means that the only price-responsive source of supply in the short term is recycled gold. 

Unlike most commodities, where there is an inverse relationship between demand and price, most demand for gold is positively related to a rising price and to rising incomes. The exception to this general rule is that, all things being equal, a rising price can be expected to impact negatively on industrial demand, to the extent that substitutes for gold are available and thrifting or miniaturization is possible.

• Jewellery demand drivers
• Industrial demand drivers
• Investment demand drivers

 Gold price chronology.
Contains a detailed chronology of the major factors behind annual changes in the gold price since it was fully freed in 1971.

Interactive chart
Shows historical changes in the daily gold price, alongside its major drivers, since the gold price was fully freed in 1971.

Daily gold prices in various currencies
Provides daily gold prices in various currencies since 2000 (including G5 index), updated weekly.