Price of one troy ounce of gold since 1960 in nominal US-Dollars and inflation adjusted by Consumer Price Index CPI-U.

Gold has been used throughout history as a form of payment and has been a relative standard for currency equivalents specific to economic regions or countries. Many European countries implemented gold standards in the later part of the 19th century until these were dismantled in the financial crises involving World War I. After World War II, the Bretton Woods system pegged the United States dollar to gold at a rate of US$35 per troy ounce. The system existed until the 1971 Nixon Shock, when the US unilaterally suspended the direct convertibility of the United States dollar to gold.

Since 1919 the most common benchmark for the price of gold has been the London gold fixing, a twice-daily telephone meeting of representatives from five bullion-trading firms of the London bullion market. Furthermore, gold is traded continuously throughout the world based on the intra-day spot price, derived from over-the-counter gold-trading markets around the world. The following table sets forth the gold price versus various assets and key statistics:

In March 2008, the gold price exceeded US$1,000,^[6] achieving a nominal high of US$1,004.38. In real terms, actual value was still well below the US$599 peak in 1981 (equivalent to $1417 in U.S. 2008 dollar value). After the March 2008 spike, gold prices declined to a low of US$712.30 per ounce in November. Pricing soon resumed on upward momentum by temporarily breaking the US$1000 barrier again in late February 2009 but regressed moderately later in the quarter.

After fluctuation returned near the US$1,000.00 mark in mid-September 2009, international gold markets peaked at US$1,023.30. Pricing later declined moderately again in late September 2009, falling back to US$991.70 for the week ending on September 25, 2009.

Later in 2009, the March 2008 intra-day spot price record of US$1,033.90 was broken several times in October, as the price of gold entered parabolic stages of successively new highs when a spike reversal to $1226 initiated a retrace of the price to the mid-October levels.

[edit] Factors influencing the gold price

Today, like all investments and commodities, the price of gold is ultimately driven by supply and demand. Unlike most other commodities, hoarding (saving) and disposal plays a much bigger role in affecting the price, because most of the gold ever mined still exists in accessible form and is potentially able to come on to the market for the right price.^[7][8] At the end of 2006, it was estimated that all the gold ever mined totaled 158,000 tonnes (156,000 LT; 174,000 ST).^[9] This can be represented by a cube with an edge length of 20.2 metres (66 ft).

At the end of 2004 central banks and official organizations held 19 percent of all above-ground gold as official gold reserves.^[10] Given the huge quantity of gold stored above-ground compared to the annual production, the price of gold is mainly affected by changes in sentiment, rather than changes in annual production.^[11] According to the World Gold Council, annual mine production of gold over the last few years has been close to 2,500 tonnes.^[12] About 2,000 tonnes goes into jewellery or industrial/dental production, and around 500 tonnes goes to retail investors and exchange traded gold funds.^[12] This translates to an annual demand for gold to be 1,000 tonnes in excess over mine production which has come from central bank sales and other disposal.^[12]

Central banks and the International Monetary Fund play an important role in the gold price. The ten year Washington Agreement on Gold (WAG), which dates from September 1999, limited gold sales by its members (Europe, United States, Japan, Australia, Bank for International Settlements and the International Monetary Fund) to less than 500 tonnes a year.^[13] European central banks, such as the Bank of England and Swiss National Bank, were key sellers of gold over this period.^[14] In 2009, this agreement was extended for a further five years, but with a smaller annual sales limit of 400 tonnes.^[15]

Although central banks do not generally announce gold purchases in advance, some, such as Russia, have expressed interest in growing their gold reserves again as of late 2005.^[16] In early 2006, China, which only holds 1.3% of its reserves in gold,^[17] announced that it was looking for ways to improve the returns on its official reserves. Some bulls hope that this signals that China might reposition more of its holdings into gold in line with other Central Banks. India has recently purchased over 200 tons of gold which has led to a surge in prices.^[18]

Bank failures

When dollars were fully convertible into gold, both were regarded as money. However, most people preferred to carry around paper banknotes rather than the somewhat heavier and less divisible gold coins. If people feared their bank would fail, a bank run might have been the result. This is what happened in the USA during the Great Depression of the 1930s, leading President Roosevelt to impose a national emergency and to outlaw the ownership of gold by US citizens.^[19]

Low or negative real interest rates

If the return on bonds, equities and real estate is not adequately compensating for risk and inflation then the demand for gold and other alternative investments such as commodities increases. An example of this is the period of Stagflation that occurred during the 1970s and which led to an economic bubble forming in precious metals.^[20][21]

War, invasion, looting, crisis

In times of national crisis, people fear that their assets may be seized and that the currency may become worthless. They see gold as a solid asset which will always buy food or transportation. Thus in times of great uncertainty, particularly when war is feared, the demand for gold rises.^[22][23]