Gold is many things to many people, but to those reading this and similar articles, gold is an investment vehicle used to make money or hedge against other investments. Understanding how gold got to this price and how gold reacts to market influences could be helpful in predicting the future path of gold.
Let’s start with the assumption that the price of gold should follow the fundamental rules of supply and demand. Many articles have been written and many more will follow discussing the intricacies of small fluctuations for short term investors, but I wanted a simple and obvious answer for what has occurred over the last rally. A few months back, after reading a few articles my curiosity peaked and I went looking for the reasons why gold became such a sought out investment. In light of recent events, I found it relevant to post what I have learned over the past few months. Seeking to explain the price of gold using public information, I was able to draw some conclusions.
The graphic below shows the correlation between supply and demand for gold (metric tons); clearly, as demand has increased, so has the price. The delta between production and demand over this time span correlated strongly with the increase in the price of gold. No surprises here.
The original article can be found here.