Good-old-gold made many think twice before investing in the precious metal. There is a difference between the gold price seen on the internet and the gold price heard from local gold stores. This split-personality price of gold is normal, even though how awkward this may sound. This divergence in prices is the economic system problem, not gold’s. For instance, there are several reports of physical gold prices rising, while we see gold prices dwindling on the internet.
To start, there are two totally different types of gold markets. The first is the old physical gold market, while the second is the E-gold market, successor of the paper gold.
The physical gold market is any market that sells you gold you can hold in your hand, and take it home to stash it anyway you desire. The other market, the paper market, is where you buy a number with “GOLD” beside it, from a trading platform or a broker. When you ask for your “gold”, they give you a paper that says you own some gold in some vault. You can re-sell this paper, and so on without having the yellow metal in your hand.
Again, these are two different markets that affect each other heavily, but still, not the same markets. The prices on the internet are estimates from the paper gold market.
Physical Gold Market
Physical gold price, the gold you can have as jewelry, bullion or coins is affected greatly by the demand and supply in your location. For example, there is a difference in prices of gold price in Egypt and in Saudi Arabia, although the gold price around the internet is the almost the same. And the two countries are not distant from each other, geographically or on the cultural level. The same applies, for example, in Vietnam and China. If gold price varies from neighboring countries, how may it vary overseas?
The local physical gold price depends on the country’s economic performance, the value of the local currency, and how strong is the demand and supply for the gold. There are other factors like premiums and gold craftsmanship and designers cost. Not to mention the purity if the gold piece, namely gold karats, All these factors merge in a complex fusion, to reach the retail seller with a certain-narrow-price range, where he adds his profit and sell to the customer. That is the price you and me hear when we take a walk in high-street and enter a gold store.
This market has a price range that needs a study on its own. So, my advice for physical gold buyers and sellers is to study your local market, look for the best price, haggle and look for the best deal. In other words, do your homework. Gold price differs from one town to another.
Remember, Thomas Edison once said: “The reason a lot of people do not recognize opportunity is because it usually goes around wearing overalls looking like hard work.”
The gold price we see on the internet, on the news, or on trading platforms is the international gold price of the spot market. This is the price of notes that are backed with physical gold, such as SPDR Gold Trust ETFs, the largest gold exchange-traded fund (ETF) in the world.
Therefore, the money we send to brokers, are to buy these notes. These notes price is set originally by the note makers (banks and firms) to track the physical price of gold in various ways. Then this original price rise and fall according to the demand and supply of the market.
The international demand and supply of the ETFs is affected by other factors that affect the foreign-exchange market. Moreover, gold in Forex has a strong correlation with US dollar and oil, which may be calculated and considered independently. Plus, the liquidity and the price fluctuation is so great compared to the physical gold market.
The bottom line is there are two markets, they are separate and yet, connected. There is the slow physical gold and the fast-paced e-gold market. Determining which is better suited for each individual case is a must, and no one can make this decision for you except yourself. The common thing between them is they both are gold markets; they are both used as hedges against inflation and economic stumbling performance. Anyhow, they are better investment than others, both are stable markets compared to others, and both are quite popular.