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Price processes in the global gold market

Author

Listed:
  • Paweł Kowalewski

    (Narodowy Bank Polski)

  • Dominik A. Skopiec

    (Narodowy Bank Polski; Warsaw School of Economics, Collegium of Word Economy)

Abstract

Recurring global crises, increasing uncertainty in the world economy, rising geopolitical risk and recently geoeconomic fragmentation have renewed and intensified interest in gold in the 21st century. The precious metal still retains an important role in the economy, most notably as a long-term store of value and efficient portfolio diversifier. One of the most remarkable changes on the global gold market refers to the role of central banks. Over several decades after the breakup of the Bretton Woods system, central banks were selling gold held in their reserves. However, following the global financial crisis central banks ceased to be a source of gold supply and became a significant component of global demand for gold. We demonstrate that gold remains valuable and expensive in terms of both currencies and other commodities. Moreover, its record prices are a result of rising geopolitical tensions and uncertainty as well as the resurrection of inflationary pressures. We argue that gold prices are also overwhelmingly influenced by the monetary policy of the Federal Reserve and the US dollar exchange rate. On the other hand, the rapid increase in the price of gold reflects rising income and private demand for gold in emerging market economies, particularly in China and India. The purpose of the article is to assess the value of gold using a wide range of metrics as well as to present the determinants of gold prices, with special attention given to demand and supply fundamentals and financial instruments based on gold. The research methods used include statistical-descriptive analysis, comparative analysis and literature study.

Suggested Citation

  • Paweł Kowalewski & Dominik A. Skopiec, 2024. "Price processes in the global gold market," Bank i Kredyt, Narodowy Bank Polski, vol. 55(4), pages 381-424, January.
  • Handle: RePEc:nbp:nbpbik:v:55:y:2024:i:4:p:381-424
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    gold price; gold market; inflation; monetary policy; exchange rate;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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