How Gold Prices Are Determined

While there many major gold markets around the world, such as New York, Zurich, Tokyo and Sydney, the price of over-the-counter gold bullion is determined twice a day in London at the London bullion market. Representatives of five banks ‘fix’ the price of gold twice a day, once at 10:30 a.m. and again at 3:00 p.m. London time. Tons of gold bullion are bought and sold through this market every day. Factors such as market activity, current demand, world events, interest rates and the relative strength or weakness of world currencies — especially the U.S. dollar — may all influence the price of gold on any given day.

Political or economic instability often increases the demand for gold, resulting in higher gold prices. Unlike paper money, gold has intrinsic value, and investors see it as a safe harbor in uncertain economic times, or as a hedge against inflation. Gold prices also tend to move in inverse relationship to the U.S. dollar. In other words, when the dollar falls in value, gold tends to rise, and vice versa. This is also the general tendency with interest rates. When interest rates rise, the price of gold tends to fall.

Forms of Gold
Investors may purchase gold in the form of bars or ingots. These bars and ingots are known as gold bullion. Gold bars are available in many different sizes, and their value is calculated by multiplying their weight in Troy ounces, by the current price of gold. A Troy ounce is equal to a little more than 31 grams.
Gold coins
Investors may choose to purchase either bullion coins or numismatic coins. Bullion coins are valued mostly by their weight in gold. Some are pure gold, while others contain a small fraction of other metals to make them more durable. Numismatic coins, by contrast, derive their value mostly from investor demand, since they are often rare and are sought after by collectors or historians.

Scrap gold
The resale value of gold jewelry and other scrap gold is calculated by the purity of the gold – whether the gold has been mixed with other metals – and the weight of the gold in Troy ounces. The purity of gold in jewelry items is measured in karats, and most gold jewelry items bear a small stamp that reveals how many karats of gold they contain, such as 18K, 22K or 24K. Once the purity of a gold item has been determined, sellers must determine its weight in gold. The weight of the gold item must be converted from regular ounces to Troy ounces, unless a jeweler’s scale is available.
Sellers of scrap gold should be careful when selecting buyers. There have been many reports of unscrupulous buyers who either fail to show sellers the weight of their gold, or who misrepresent its weight to get the gold for less than its true worth. Buyers are advised to check to see that any scales used to weigh gold have been licensed by the state. Many states require that scales must be tested for accuracy and approved by the National Type Evaluation Program, an initiative of The National Conference on Weights and Measures.

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