Gold futures () opened at $4,228.10 per troy ounce on Monday, down 0.4% from Friday’s closing price of $4,243. The price of gold fell in early trading.
The US central bank’s policy-making committee will meet on Tuesday and Wednesday to confirm or adjust interest rates. Analysts and investors largely expect a quarter-point rate cut. CME FedWatch currently estimates an 89.6% probability that the Federal Reserve will reduce the target rate to a range of 3.50% to 3.75% from the current range of 3.75% to 4%.
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Lower interest rates reduce borrowing costs for businesses and consumers, which can encourage spending, stimulate the economy and raise prices. There is some concern about lowering rates as long as inflation remains above the Federal Reserve’s 2% long-term goal. The latest PCE inflation report showed prices rose 2.8% in September, up from 2.6% in June and July.
Lower interest rates also reduce cash returns, making gold look more attractive by comparison.
The opening price of gold futures on Monday was 0.4% lower than 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: +0.2%
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A month ago: +6.2%
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One year ago: +61.4%
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 at 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.