Gold futures (GC=F) opened at $4,069.20 an ounce on Monday, down 0.3% from Friday’s close of $4,079.50. The price of gold has remained below $4,100 since November 19.
The short-term interest rate outlook continues to influence the demand and price of the yellow metal. Traders are currently predicting a 73.5% chance that the Federal Reserve will lower rates by a quarter point in December, according to CME FedWatch. The chances increased after New York Federal Reserve President John Williams spoke last week, expressing support for another rate cut. However, the Federal Reserve will have to make its decision without current employment data. The Bureau of Labor Statistics canceled the October employment report and delayed the November release until December 16. The Federal Reserve meets on December 9 and 10.
Interest rates affect demand for gold because the precious metal competes with assets that generate returns for investors’ dollars. When interest rates fall, cash deposits earn less and gold, which pays no interest, looks more attractive in comparison.
The opening price of gold futures on Monday was down 0.3% compared to Friday’s close. Below is how the opening price of gold has changed compared to the past week, month and year:
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A week ago: 0%
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A month ago: -1.2%
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One year ago: +51.4%
On November 14, gold’s annual gain was 63.4%.
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The price of gold can be quoted in multiple ways because the precious metal is traded in different ways. The two main gold prices that investors should be aware of are spot prices and gold futures prices.
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The gold spot price is the current market price per ounce of physical gold as a commodity, sometimes called spot gold. Gold ETFs that are backed by physical gold assets generally track the spot price of gold.
The spot price is lower than what you would pay to buy gold coins, bars, or jewelry, as your total price will include a margin called the gold premium that covers refining, marketing, dealer overhead, and profit. The spot price is more like a wholesale price, and the spot price plus the gold premium is the retail price.
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Gold futures are contracts that call for a transaction in gold at a specific price on a future date. These contracts are traded on the exchange and are more liquid than physical gold. They are settled on or before the contract expiration date, either financially or by delivery. A cash settlement involves paying the contract profit or loss in cash. Delivery means that the seller sends physical gold to the buyer for the contracted price.
Supply and demand determine gold spot prices and gold futures prices. Factors that influence the supply and demand of gold include:
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Geopolitical events
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Central bank purchasing trends
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Inflation
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Interest rates
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Mining production
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Whether you are following the price of gold from last month or last year, the gold price chart below shows the constant rise in value of the precious metal.