Gold and monetary, economic and political factors

The price of gold is influenced by monetary, economic and political factors. For many years, until the early 1930s, its price was controlled by governments and pegged at US$20.67 per troy ounce. All gold produced in Canada was sold to the Royal Canadian Mint.

In 1934, U.S. President Franklin Roosevelt officially raised the price of gold to US$35.00 per troy ounce and, in effect, reestablished the gold standard which had been displaced by floating exchange rates following the First World War.

In 1947, the Bretton Woods agreement ushered in an era of fixed exchange rates whereby various world currencies were exchangeable into the U.S. dollar, which, in turn, was readily exchangeable into gold.

This system worked well into the late 1960s, when speculative pressure against the American dollar caused a run on gold. This brought in the “two-tier” gold system, where there was an official market for central banks and a “free” market for others.

Speculative pressures and a faltering U.S. economy forced the government to raise the official price to US$38.00 per troy ounce in 1972 and again to US$42.22 the following year — in effect, devaluating the U.S. dollar.

Since 1972, gold has been freely traded on terminal markets. Both Zurich and London bullion markets vied for dominant influence. The Winnipeg Commodity Exchange started the trade in gold futures in 1972. COMEX and other U.S. markets followed suit to create a lively spot and futures market. Gold prices today fluctuate, based on terminal market buying and selling.

Because it is an investment of last resort, gold also functions as a currency and tends to increase in value as other currencies fall. Its price in a given currency will go up during times the currency is weak, and fall when the currency is strong.

Prices quoted on spot and futures markets are for “0.9999 fine” gold, that is gold with a minimum 99.99% purity.

Other Precious Metals: The price pattern for silver is exceedingly complex. Fear of inflation, armed conflict and the changing patterns of industrial usage all have effects on the price of silver. The metal is quoted in US dollars per troy ounce. The dominant market for silver is the London bullion dealers market, and there is an important futures market at the Comex in New York. Prices quoted on spot and futures markets are for 0.999 silver.

The prices of platinum and palladium are fixed daily by a group of dealers in London, and futures are traded on the New York Mercantile Exchange. Prices are quoted in US dollars per troy ounce.

Other precious metals of the platinum group do not trade on terminal markets, and the most useful quotations are the producer prices set by individual refiners in response to the market for each metal.