The price of gold is influenced by supply and demand, currency movements, interest rates, central bank actions, and global economic conditions.
Gold is seen as a safe-haven asset and is traded worldwide by investors, banks, and governments. Its value changes with market trends, making it both a commodity and a financial asset.
The three major trading hubs are London, New York, and Shanghai. These markets play a central role in setting global prices and connecting buyers and sellers.
Today, we will explore in more detail how the gold market works and what drives its price.
How Does the Global Gold Market Work?
The gold market runs on trust and demand. Gold is traded across the world every day. The key driver is the spot price. The spot price is the live price for one troy ounce of gold.
Big players like central banks, mining companies, bullion banks, and hedge funds shape this market. They trade gold in bulk. Most of this happens in hubs like the London Bullion Market Association (LBMA) and the COMEX in New York.
Physical gold and paper gold are both traded. Here, physical gold means bars and coins. Paper gold means futures, ETFs, and contracts. Futures contracts on COMEX set the tone for global pricing.
The market reacts to currency moves, interest rates, and inflation. When the US dollar drops, gold often rises. When inflation fears grow, demand for gold increases.
This system makes gold a global asset. It moves 24/7 across borders. Investors watch the spot price but also look at premiums and spreads. These show the real cost for buyers and sellers.
Market Structure & Key Participants
The gold market has many key participants. Each group plays a unique role in the flow of gold.
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Miners dig gold out of the earth. They sell this raw gold to refiners.
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Refiners take the raw material and turn it into pure bullion. They supply banks, jewelers, and manufacturers.
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Bullion banks are big financial institutions. They trade huge volumes of gold. They act as market makers and connect buyers with sellers.
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Central banks hold massive reserves of gold. Their buying or selling can influence global prices. Their monetary policies also affect demand.
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Jewelers and manufacturers use physical gold in the real economy. They are the largest consumers of ornaments, electronics, and other products.
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Traders and speculators add liquidity. They buy and sell gold directly or through derivatives like futures and CFDs. Their actions shape short-term price moves.
Major Trading Hubs
The three main gold trading hubs are the London OTC market, the US futures market, and the Shanghai Gold Exchange (SGE). Together, they account for over 90% of global gold trading, with smaller markets around the world making up the rest.
These hubs connect miners, refiners, banks, and investors.
The London OTC Market
London is the largest over-the-counter (OTC) market for gold. Trades here are not on an exchange but directly between institutions.
The London Bullion Market Association (LBMA) sets standards for purity and delivery. London is also home to the London Gold Fixing, a benchmark price set twice daily that guides contracts worldwide. This makes London the anchor of physical gold trading.
London has been the historical center of global gold trade. Even today, it handles about 70% of global notional trading volume.
The market attracts participants from across the world. Twice a day, it sets the global benchmark price known as the LBMA Gold Price.
Trades in London are done in large 400-ounce Good Delivery bars. These bars are kept in secure vaults operated by the London Precious Metals Clearing Limited (LPMCL) and the Bank of England.
London’s vaulting system is known for its strict custody rules and large reserves. Because of this, London is often called the “terminal market.”
London also enjoys a time zone advantage. It connects trading between Asia and the US. On top of that, it benefits from its role as a global financial hub.
But in recent years, London’s share of trading has slipped. In 2015, banks stopped publishing GOFO rates, which were once used to set the forward curve for gold. This was a sign of a more fragmented market.
To address this, the World Gold Council and the London Metal Exchange (LME) launched LMEprecious. These exchange-traded contracts aim to modernize the market and make it more efficient.
New York
New York is the key hub for gold futures. On the COMEX exchange, traders buy and sell futures contracts that lock in prices for future delivery. These futures influence global expectations.
Even if no physical gold changes hands, futures trading impacts spot prices and hedging strategies. New York is where sentiment and speculation show up fast.
Shanghai hosts the Shanghai Gold Exchange (SGE)
The biggest physical gold exchange in the world. It reflects demand from China, the largest consumer and importer of gold.
The SGE is important because it operates in yuan, not dollars. This gives China influence in pricing and reduces reliance on Western hubs.
How is the Price of Gold Set?
The price of gold is shaped by both physical demand and financial trading. The most important reference is the spot price, which is the live price for immediate settlement of gold, quoted per troy ounce in US dollars.
Gold prices are influenced by:
Supply and demand – how much gold miners, refiners, and consumers are moving in the market.
Futures markets – contracts traded on COMEX in New York, which reflect investor sentiment and expectations.
Currency movements – gold often moves opposite the US dollar.
Monetary policy and inflation – central bank decisions and inflation levels change investor appetite for gold.
Geopolitical risks – crises or uncertainty push investors toward gold as a safe haven.
Amid all these factors, the market still relies on a formal benchmark. This is where the London Bullion Market Association (LBMA) comes in.
What is LBMA?
The LBMA (London Bullion Market Association) is the global authority for the wholesale over-the-counter (OTC) gold and silver markets. It sets the standards for purity, trading, and settlement.
The LBMA also oversees the LBMA Gold Price, which is the official benchmark for gold. This price is set twice daily at 10:30 a.m. and 3:00 p.m. London time. The process is electronic and transparent, and it brings together major bullion banks and financial institutions to match buy and sell orders. The result is a single reference price used worldwide.
Another key role of the LBMA is to manage the Good Delivery List. This list sets the standard for the 400-ounce bars that are traded in London. Only refiners who meet LBMA’s strict criteria can be accredited, which gives confidence in the quality and reliability of the bars.
The LBMA’s work extends to vaulting, compliance, and market practices. Its rules and infrastructure help maintain London’s position as the hub of global gold trading.
What Are the Key Factors That Affect Gold Prices?
Gold prices are influenced by supply and demand, real interest rates, the U.S. dollar, inflation, market sentiment, and geopolitical events. Here are the key factors in detail.
1) Correlation (Per World Gold Council)
Gold does not move the same way all the time. In calm markets, gold can rise with equities. In stress, gold often decouples and turns negatively correlated to risk assets. This “correlation flip” is why gold works as a diversifier. It helps when stocks and bonds fall together.
The World Gold Council tracks these shifting correlations across assets and time frames. (Source:World Gold Council)
Why it matters:
- Portfolio risk drops when an asset’s correlation turns low or negative.
- In crisis regimes, gold’s safe-haven profile shows up fast.
2) Monetary Policy and Fed Moves
The Fed drives real yields. Real yields are nominal yields minus expected inflation, and Gold has no coupon. So, the opportunity cost of holding gold falls when real yields fall. That tends to lift gold.
Rate cuts, forward guidance, and QE/QT shift rate expectations and the dollar. Those moves feed straight into gold. (Source:J.P. Morgan Private Bank)
What to watch:
- Fed funds expectations and the real 10-year.
- FOMC statements and dot plots.
- Liquidity signals from the balance sheet.
- Right now: Hopes of Fed cuts have weakened the dollar and boosted gold to records. This shows the classic real-rate and dollar channels at work. (Source:Reuters)
3) Supply and Demand (Physical + Investment)
Gold’s supply grows slowly. Mine production and recycling add a few percent a year to above-ground stocks. Demand swings matter more. Key demand buckets are jewellery fabrication, technology, bar and coin, ETFs, OTC flows, and central bank reserves.
In 2025, demand has been strong, helped by ETF inflows and ongoing (though moderating) central-bank buying. (Source:World Gold Council)
Central banks: Net purchases have stayed elevated versus the 2010–2021 norm. This has supported prices and signalled reserve diversification. Surveys show central banks value gold’s role against currency and fiscal risks. (Source:World Gold Council)
ETFs and OTC: When ETF holdings rise, investment demand lifts the spot and tightens local premiums. The WGC’s mid-year outlook also links 2025 strength to a softer dollar and high macro uncertainty. (Source:World Gold Council)
4) Inflation
Gold is a long-term inflation hedge. Over short windows, the link can fade. Over long horizons, gold tends to preserve real purchasing power.
In practice, gold responds more cleanly to real rates (yields minus inflation expectations) than to headline CPI alone. So watch breakevens and the TIPS-implied real yield. (Source:World Gold Council)
Portfolio takeaway:
Use gold as part of an inflation-hedging basket.
Pair it with assets like inflation-linked bonds or real assets to smooth short-term noise. (Source:World Gold Council)
5) U.S. dollar
Gold is priced in USD. A weaker dollar makes gold cheaper in other currencies. That often lifts global demand.
The gold-USD relationship is usually inverse, though not perfect every year. In 2025 headlines, dollar dips on expected Fed cuts have lined up with fresh gold highs. Banks and strategists describe this dollar channel as a key driver. (Source:Reuters)
Bottom line: Track DXY and broad USD moves versus major importers’ currencies. Dollar weakness is a tailwind for bullion. (Source:J.P. Morgan Private Bank)
6) Geopolitical uncertainty
Crisis risk boosts safe-haven demand. Wars, sanctions, fiscal stress, and market shocks can add a risk premium to gold.
WGC market commentary in 2025 notes that a weaker USD plus elevated risk pushed gold higher. Rising fiscal concerns have also supported demand as investors seek tail-risk hedges. (Source:World Gold Council)
How it shows up:
Higher ETP inflows and OTC buying.
Wider local premiums in key markets.
Futures net long positioning is rising on COMEX (sentiment channel).
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FAQs
Why is the Gold Price Rising?
Gold rises due to weak currencies, low real yields, high demand, and geopolitical or economic uncertainty.
What Determines if Gold Goes Up or Down?
Gold prices are driven by supply and demand, interest rates, inflation, the U.S. dollar, and market sentiment.
What is Driving Up the Price of Gold Right Now?
Current gold gains are supported by a softer dollar, central bank buying, ETF inflows, and macroeconomic uncertainty.
What Makes Gold Unique?
Gold’s scarcity, durability, and tangibility make it a stable long-term store of value. Unlike currency or financial assets, it cannot be printed, maintains high liquidity, and often rises during inflation, economic uncertainty, or geopolitical crises.
