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Gold Breaks the Rules of Supply and Demand

Fluctuating Commodities Prices and the Effect on Supply and Demand

When supply increases or demand decreases, prices drop. When supply decreases or demand increases, prices rise. The concept of supply and demand seems simple. We’ve seen this at play many times, including when gas prices spiked across the U.S. after Hurricane Harvey hit Texas and forced the closure of eight refineries.

Recent Trends in Gold

However, the typical rules that apply to most commodities don’t hold true when it comes to gold – and much of the reasoning has to do with the nature of its use.

Gold demand in Q1 2017 was 1,038 tons and supply was 1,029 tons. Then in Q3 2017, gold demand dropped drastically to 915 tons and supply rose to 1,146 tons. Based on the basic laws of supply and demand, one would expect that the price of gold took a major hit when comparing Q1 to Q3. What actually happened with the price of gold? In 2017, Q1, gold barely broke the $1,250 per ounce threshold, whereas in Q4 we saw prices climb to more than $1,340 per ounce.

Supply and Demand of Gold

So what can we take from this example? Gold is in a category of its own, sitting somewhere between commodity and currency, and little of this metal is ever destroyed – it merely moves from one owner to another. It functions like a commodity in terms of its use in jewelry making and technology. However, it functions as a currency when used to back local currencies.

What key factors most influence the price of gold? Stay tuned for next week’s three-part series – we’ll explain what events determine gold prices and let you know why. If the suspense gets to be too much, we’re happy to walk you through the influencers of gold prices today. Send us a Tweet or comment on our Facebook page.

 

 

Gold and SIiver Investment Guide