How Current Gold and Silver Prices Are Determined

Precious metals are constantly traded; their markets are so active that it may seem that there is no pause in its trading activities. With the different time zones, it is not surprising for gold and silver to be traded 24x7 in various international bourses and financial exchanges.

It is the market activity that determines the gold and silver prices which may go up or down. The basic supply and demand factors are the main contributors to these metals’ daily prices.

Demand for gold

There are 3 main sources that affect the price of gold and silver.
One, investment demand by an individual, organization or government can affect these precious metals’ pricing. Small or large investments can affect the said metals’ pricing easily depending on the trade demand.

Next, industrial demand of gold and silver affects their pricing easily as they have attractive properties suited for many industrial uses.

Thirdly, there is always the jewelery demand of gold and silver to be adorned or stored and passed on from generation to generation in Oriental cultures. Such high esteem of gold keeps its pricing buoyant.

Supply of gold and silver

However, the supply of gold and silver is not as dynamic as their demand. Supply is limited from the earth’s resources and difficult to source using expensive technology and tools. This causes gold and silver to be more valuable. It is estimated that the total amount of gold that can ever be sourced is only a 20 cubic yard.

And because these precious metals are scarce, their current owners are holding on to them tightly; hence, the value of gold and silver keep increasing making it a vicious cycle on its supply and demand value.

Another important source which can determine the value of gold and silver is the futures market. This arena holds the supply and demand level of these precious metals as this is where buyers and sellers of gold and silver trade actively on various commodities as well as financial derivatives.

Spot price

Futures prices of these precious metals can affect the spot price of a commodity, which is usually gold; a spot price of a commodity is the actual price that the commodity is agreed upon to be traded and delivered immediately.

A spot price of any commodity is the actual value of the commodity at that point in time which is usually traded in US currency. But today the trend is changing with the spot price being traded in other currencies like the European Euros, Chinese Yuan, Japanese yen, Australian dollars, Hong Kong and Canadian dollars.

Low Interest Rates May Allow Gold and Silver to Rise

With the Federal reserve most likely not changing the current fiscal policy, gold and silver prices may rise due to low interest rates allowing investors to buy precious metals as a hedge against inflation, according to Dave Rusate, GE Capital's managing director of foreign exchange and commodities.

"If the government doesn't raise interest rates, that allows hedge funds and other speculators who try to protect themselves from inflation to buy" (gold and silver), says Rusate.

For the ninth straight year gold futures have risen and are up already 11 percent this year. A new record was achieved in May 14 when gold hit $1,249.70 an ounce. Silver is also up on the year at around 25% in the last 12 months.

Rusate also states that platinum may have a nice jump in the next month as South Africa the world's largest platinum producer slows down production due to the World Cup. South Africa is the host country for the World Cup and electricity flowing to mining companies may be directed toward the event.