How The Price of Gold is Determined

At best, the average person gives the price of gold momentary consideration before determining that it is priced by the ounce and moving on to more pressing matters. This simplistic determination is correct to a degree, but the true price is set by more than just the weight of this precious metal.

Let's take a look at this question of value from another angle. The current price of gold on the open market is about $1,500. That seems fair and equitable until you consider that its true value is estimated at $3,000 to $5,000. Yes, that is per ounce. How is this level of value suppression even possible? Let's find out.

The Gold Standard: Weighing in on the Price of Gold

The value of gold has hit dizzying heights and abrupt short falls. Since the days of the Gold Rush, this "bullion" has been at the center of a great valuation debate.

It used to be that the mere possession of a few ounces or nuggets meant that you were set for life. While it is still highly valuable; the price of gold is caught in a tug-of-war between the open market and the central banks.

There are several theories about what is effecting prices, but it is better to look at actions you can prove; rather than price-setting by hypotheticals. On the open market gold is used as a resource for quick trades and as a predictor of future monetary trends, even when the trading environment is choppy. This choppiness is caused by a domino effect-an effect of 5 elements that when combined, give us our current gold value scale.

They are:

1. Suspicion of currency manipulation

2. Supply and demand

3. Safe haven buying

4. Currency debasing

5. Central bank buying

Three of these factors lead back to a single source: the central banks. That's as good a place to start as any.

Valuation; is it Centrally Located? 

There are several signs that indicate all cost-determining roads lead back to governmental financial institutions; not that big of a revelation on the surface, but suspicions of manipulation run high.

These suspicions started about 20 years ago and have only gained momentum with investigatory action from both the Gold Anti-Trust Action Committee and the World Gold Council. Their statistical information puts the gold reserves at between 15,000 and 32,000 tons. They believe it is being parceled off and leased on the market to restrict the available amount.

Certain actions by the banks indicate that they have become gold buyers and not gold sellers. The gold supply used to be divided into three streams:

1.59% from mining production

2. 31% from recycled metals

3. 10% from central bank sales

With suspected privatized gold sales from the banks, the accessible gold supply is dwindling, as mining production begins to run dry. 

 The downturn in supply puts the market into crisis mode, which attracts the concern of investors. They quickly buy up 5 to 20 percent of the remaining gold supply to safeguard their financial futures.

The massive buy-out creates panic about the value of paper currency and gold's ability to retain its purchase power. Now, we are back where we started with the central banks remaining big buyers in the gold marketplace and causing gold to move through double-digit price fluctuations.


Now, it's easy to see how those five elements dovetail one another and effect the price of gold. What can you-the average person-do with this information? Use it to establish fair market value for your gold items. Visit or call Pinto Gold for more transaction-related information.

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