Gold is unique in that it is both a commodity and a monetary asset. It is mined like copper, stored like currency, traded like oil, and used as a hedge like insurance. Because of this dual role, gold’s price responds not only to supply and demand, but also to interest rates, inflation, geopolitics, and central bank policy. As confidence in paper assets wanes, gold is often prioritized as a store of value.
The global benchmark for gold is established in London, the world’s oldest and largest physical hub for the precious metal. of LBMA Gold Price will be decided twice a day through an electronic auction-based process, replacing the prestigious “Gold Ring” in 2015. This process involves 15 major market-making banks, including: JP Morgan Chase, Goldman Sachs, UBSmatches buy and sell orders in a series of rounds.
If the imbalance between buyers and sellers exceeds 10,000 ounces, the price will adjust and the auction will restart until a “correction” is reached.
The London Fix is the ‘North Star’ for global supply chains. These are the prices used by mining companies such as newmont and barrick gold By evaluating quarterly production, the U.S. Mint determines the price of bullion coins.
The London market handles the physical movement of bars, often kept in high-security vaults at the Bank of England, but primarily operates in “unallocated” accounts. This means that the price reflects confidence in the system’s ability to settle large transactions. For news readers, the London Fix represents the ‘wholesale’ price of gold, removed from the speculative noise often found in the day-to-day retail market.
How gold spot prices are formed in real time
London deals with physical metal, COMEX (commodity exchange) In New York, “price discovery” using futures contracts is the mainstream. This is where the “spot prices” you see on financial news tickers like Bloomberg and CNBC truly come into being. The COMEX is a derivatives market where traders bet on the future direction of gold without taking physical delivery of gold bars. The amount of “paper gold” traded on the COMEX often dwarfs the world’s actual physical gold supply. 100 to 1 or more.
This high-frequency environment is dominated by hedge funds, institutional speculators, and “managed money.” These players instantly react to US economic data such as: Nonfarm Payroll (NFP) Report or Consumer Price Index (CPI) updates.
If inflation statistics are higher than expected, COMEX traders could sell gold in anticipation of a Fed rate hike. Conversely, when the US dollar depreciates, people buy more paper gold. These contracts are leveraged, so small changes in cost can lead to large liquidations or rebounds. This volatility is why retail investors in the U.S. often see gold prices soar and plummet within seconds of government announcements, long before physical gold bars are redeemed.
Gold-backed exchange-traded funds closely track spot prices because they store physical bullion in a vault. However, retail investors rarely pay the spot price directly. Coins, bars, and jewelry include a premium that covers manufacturing, transportation, insurance, dealer margin, and market liquidity. These premiums expand during periods of increased demand or supply disruption.
Spot prices react instantly to macroeconomic data. US inflation reports, Federal Reserve interest rate decisions, employment data, and currency movements all influence gold’s intraday direction. When the US dollar falls, gold often rises because it becomes cheaper for foreign buyers. When real yields fall, gold tends to benefit as the opportunity cost of holding non-yielding assets falls.
The spot market reflects the current situation. It answers only one question: What is gold worth today, based on today’s conditions?
The most powerful “invisible hand” in the gold market belongs to the world’s central banks. of US Treasury remains the world’s largest holder, 8,133 tons It’s housed in places like Fort Knox and West Point. This savings provides psychological support for the US dollar’s status as the world’s reserve currency. But the story is shifting to emerging markets.
In the past 36 months, People’s Bank of China (PBOC) The Reserve Bank of India has emerged as the most consistent buyer, often buying gold in “off-market” transactions to avoid soaring spot prices.
These institutions buy gold to diversify “sovereign risk.” When central banks buy gold, they become less dependent on U.S. Treasuries. This is an important data point for the US economy. As foreign demand for U.S. Treasuries fluctuates, gold becomes the ultimate “neutral” asset.
For U.S. consumers, this means that even if the U.S. domestic economy is strong, global demand for gold could keep prices high. Central bank buying is essentially “sticky” demand. Unlike hedge funds, these institutions do not “day trade” their holdings. These hold for decades, effectively shrinking the floating supply of gold available and creating a long-term bullish trend that counters the volatility of the New York and London exchanges.
The final piece of the pricing puzzle is real interest ratewhich is the Treasury yield minus the inflation rate. gold is historically -0.80 correlation with real yields.
Simply put, gold doesn’t look attractive when you can earn a 2% or 3% “real” return on safe government bonds. However, when inflation erodes bond yields and “real” returns become negative, gold becomes the preferred haven. This is why the Federal Reserve’s “dot plot” and their commentary on inflation are the most watched events for US gold traders.
Additionally, the strength of the US dollar (DXY) plays a mathematical role in the value of gold. Gold is denominated in dollars around the world, so a stronger dollar means a higher price for gold for buyers using euros, yen, or yuan. This usually leads to a decrease in demand for gold and a fall in the dollar price.
However, we are currently witnessing a rare “regime shift” in which gold and the dollar sometimes rise together during periods of extreme geopolitical tension. For modern investors, the price of gold is no longer just a reflection of “inflation.” This is a complex real-time index. Geopolitical risks, currency depreciation, and shifts in the balance of global financial power.
Why gold futures often increase price expectations
While spot prices reflect immediate value, gold futures form expectations about the future. A futures contract is a standardized contract to buy or sell gold at a predetermined price at a future date. They are primarily traded on exchanges such as the COMEX, part of the CME Group, and are among the most liquid commodity contracts in the world.
Futures prices incorporate predictions about inflation, interest rates, currency appreciation, and global risks. Large institutions, hedge funds, mining companies, and central banks use futures to hedge exposures and express macroeconomic views. Because the futures market trades almost 24 hours a day, we are often the first to react to breaking news.
Most futures contracts do not involve physical delivery. Instead, it will be settled in cash before expiry. This does not diminish their influence. High trading volumes mean that futures prices have a large impact on the spot market through arbitrage. When futures prices spike, spot prices typically follow suit.
Backwardation and contango in the futures curve also provide signals. When short-term futures are trading higher than long-term contracts, it may indicate near-term demand stress or supply concerns. If long-term prices are high, the market may be pricing in inflation or future instability.
In times of crisis, futures markets can amplify gold’s movements. Futures flows fueled price momentum in 2020 amid the pandemic shock and again in 2025 amid geopolitical tensions and fiscal uncertainty. This makes the futures market an important factor in determining the perceived value of gold.
The force that moves the world gold price
The price of gold ultimately responds to supply and demand, but the drivers of that demand are complex. Geopolitical risk remains one of the most powerful catalysts. Wars, sanctions, trade disputes, and political instability drive investors toward assets that are considered neutral and durable. Gold has no counterparty risk, making it attractive in times of crisis.
Central bank activity is also an important factor. For the past decade, central banks have been net buyers of gold, increasing their reserves to diversify from the US dollar. Large purchases or sales by central banks can have a significant impact on global supply, especially if confidence in fiat currencies declines.
Inflation expectations directly affect the demand for gold. When investors think their purchasing power will decline, gold becomes a hedge. This relationship has strengthened since 2021, as inflation rates in many developed countries remained above historical norms.
Interest rates have the opposite effect. Money does not generate income. Rising real interest rates often put pressure on gold prices by making high-yielding assets more attractive. When interest rates fall or inflation exceeds yields, gold becomes more attractive again.
Mine supply plays a slow but important role. Gold production responds to long-term price signals rather than short-term volatility. Higher prices may encourage exploration, but it will take years for new supply to reach the market. Rising mining costs, regulatory hurdles and declining ore grades will also limit supply growth.
What history reveals about gold’s long-term value
Gold’s price history highlights its volatility and resilience. Adjusted for inflation, gold has experienced cycles of weakness followed by rapid gains. From the mid-1930s to 1970, gold lost significant real value under a fixed-price system. After market liberalization, gold soared nearly nine times between 1970 and 1980 amid inflation and currency turmoil.
The next 20 years were difficult. From 1980 to 2001, gold fell more than 80% in real terms as inflation receded and financial markets expanded. However, from 2001 to 2025, gold rose nearly sixfold, fueled by the financial crisis, unconventional monetary policies, and rising government debt.
The 2025 rally fits this historical pattern. Gold performs best when confidence in the traditional financial system weakens. Its strength heading into 2026 reflects structural concerns, not just speculation.
For investors, gold’s history highlights one truth. This is not a short-term deal. It’s a strategic asset. Allocation size is important. Too much exposure can prolong returns during plateaus. Too little and your protection in a crisis can be limited. The value of gold ultimately depends on how much insurance investors buy against uncertainty.
In that sense, it is the market that determines the value of gold. every day. One transaction at a time.
FAQ:
Q: Who actually decides the price of gold? And is the price of gold controlled by governments or banks? A: No single institution sets the price of gold. Value is determined continuously by global markets through spot and futures trading. Prices reflect real-time supply and demand, investor risk appetite, interest rate expectations, and central bank activity. Although large institutions influence liquidity, there is no body that controls the pricing of gold.
Q: Why did gold prices soar over 65% in 2025 and what conditions supported that rise?
A: Gold has soared amid persistent inflation, falling real interest rates, and rising geopolitical risks. The central bank accelerated gold purchases to diversify foreign exchange reserves. Confidence in financial assets has declined due to rising US debt and currency uncertainty. These combined circumstances have increased the demand for gold as a defensive hedge.