Three main types of world gold prices

At present, there are three main types of gold prices in the world: market price, production price and quasi-official price. Other types of gold prices are derived from this.

First, the market price.

Market prices include spot and futures prices. These two prices are both related and different. Both prices are restricted and disturbed by various factors such as supply and demand, which change greatly, and the price determination mechanism is very complicated. Generally speaking, spot prices and futures prices are affected by similar factors, so the direction and magnitude of change of the two are basically the same.

However, due to the convergence of market trends, the basis of gold (that is, the difference between the spot price of gold and the futures price) will continue to decrease as the futures delivery period approaches. By the delivery period, the futures price and the traded spot price are roughly equal.

In theory, the futures price should reflect the spot price plus the holding cost for a given delivery period stably. Therefore, the futures price of gold should be higher than the spot price, and the forward futures price should be higher than the recent futures price, with a negative basis. However, due to the complex factors that determine the spot price and the futures price, such as: the near and far supply of gold, including the size of the annual production of gold, the sale of gold reserves by central banks, etc.;

The market demand for gold, including changes in the actual demand for gold (jewelry industry, industry, etc.), gold recycling and reuse, etc.; the stability of the world and national political situation, the level of inflation, interest rates, and some emergencies are the main factors affecting investor psychology, which in turn affects the trend of gold prices; speculators take advantage of gold price fluctuations and emergencies to hype up, and various hedge funds enter the market to create artificial supply and demand illusions.

All of this may cause the supply and demand of gold in the world gold market to be unbalanced, and the relationship between spot and futures prices to be distorted. At this time, due to the shortage of gold supply, the cost of holding futures cannot be compensated, and even the basis is positive, resulting in the actual price being higher than the futures price, and the recent futures price is higher than the forward futures price.

With the establishment of gold markets such as the Hong Kong Gold Market, the world gold market has been connected into a continuous whole, trading continuously 24 hours a day. Due to the above factors, the price of gold in the world market often fluctuates drastically. Only medium- and long-term average prices, because they neutralize various speculative factors, are a more objective reflection of the market price of gold affected by supply and demand. For example, in the 45 gold auctions conducted by the international monetary fund between 1976 and 1980, the average price achieved was $228.56/ounce, which was very close to the average of the London gold pricing market during the same period.

Second, the production price.

The production price is an apparently stable price base based on the cost of production, which is fixed at the market price. At current exchange rates, the average total cost of gold mining is estimated to be just under $260 per ounce (in 1986, the cost of gold production in South Africa was about $258 per ounce).

In fact, with the advancement of technology, the cost of prospecting, mining, refining, etc. has been decreasing, and the cost of gold mining has been declining. Statistics from the World Gold Council show that the world currently adds about 2,600 tons of gold every year, and the annual demand for gold is greater than the amount of mining 300 tons to 500 tons.

However, due to the large-scale gold selling by central banks since 1996, the price of gold in the international market has fallen all the way from a high of $418 per ounce, and even dropped to $257.60 per ounce, which is lower than the cost of gold production in a certain period of time, causing major gold-producing countries to suffer huge losses.

III. Quasi-official prices.

This is a price used by central banks for activities related to official gold. In quasi-official prices, it is divided into mortgage prices and book prices. The total official reserves of central banks around the world (central banks are often the largest holders of gold in various countries) were approximately 34,000 tons in 1998. At current capacity, this is equivalent to 13 years of world gold mine production and accounts for 24.7% of the total gold stock mined at 137,400 tons, which is an important reason for setting quasi-official gold prices.

1. Mortgage price.

This was created by Italy in 1974 to achieve borrowing from the Federal Republic of Germany, using its own gold as collateral. The determination of the collateral price is of great significance in the history of modern gold. On the one hand, it meets the international monetary fund's requirement that each ounce of gold is equal to 35 special drawing rights, and on the other hand, it meets the need of the central bank that holds the gold not to freeze the gold.

In effect, the price is a combination of US demands not to "monetize" gold and Europe's prudent demands for "demonetisation" of gold. Borrowing is collateralised by gold, which is priced at market prices and then discounted, to some extent the price of gold is preserved because there is a lot of gold being collateralised. If the price of gold falls, the interest on the borrowing period has to be higher than the London Interbank Offered Rate.

2. Bookkeeping price.

It was proposed after the collapse of the Bretton Woods system in August 1971. Due to the strong attractiveness of market prices, in the case of large differences between market prices and official prices, countries have increased their official gold prices due to the need to price their official gold reserves, thus generating quasi-official bookkeeping prices for determining official reserves.

There are three main methods in operation: (l) according to different discount standards (at the market net price or up to 30% discount) linked to the market price, according to different bases and different adjustment periods to determine the gold price (divided into 3 months average, month-end average, etc.) (2) The purchase price is used as the pricing basis. (3) Some countries set the historical official price, such as the United States in March 1973 at $42.22/ounce, and some countries set it at the international monetary fund in 1969 at $35/ounce. Quasi-official price has become a more important gold price in the world gold trade.