What is the World Gold Market?

The gold market is a trading centre where parties agree on the trade price and volume, as well as enter into a deal according to the market conditions. The main world gold trading headquarters is the London Stock Exchange (Loco London) – it functions as an international standard for gold transactions and settlements, according to which most gold transactions are concluded every day.

Nowadays, gold market capitalization has reached ~ 8 trillion $ *. Gold is also a unique metal because of its diverse market structure.

Gold Market Demand. Where is gold used in the world?

The demand for gold in the world is also economically justified beyond its application for investment purposes. The picture below shows the gold market distribution across channels in 2016. *

Source: World Gold Council | Gold Demand Trends full year 2016

• Almost 60% of the total market demand is consumed by the jewellery market as well as in manufacturing, gold in raw form is irreplaceable for many sectors: electronic engineering, medicine, dentistry, road construction and many other areas. Even if gold happens to become less attractive to investors for a particular period, due to certain financial market conditions, it still remains a core element for many industries.
• Gold consumption in China, India and other Asian countries, where gold ownership is integrated into tradition, culture and religion, plays an important role in the gold demand structure.
•  Even nowadays gold is still strategically important for countries, central banks, foreign currencies and gold reserves. Historically countries with high economic relevance in gold standard had maintained a relatively high share of gold reserves in the overall central bank’s reserve structure. These are mostly developed countries that occasionally sell parts of their gold reserves. On the other hand, developing countries, which have been absolute net gold buyers  over the last 10 years, have been intensively increasing their reserves. Such countries include China and Russia.

Gold Market supply. What makes gold available worldwide?

Gold market availability is affected by three factors: gold mining, central banks and gold processing.

Source: World Gold Council | Gold Demand Trends full year 2016

• Over the last five years, central banks have sold insignificant amounts of gold. In 2016, such reserve sales were not observed.
• The main source of gold is the ground from which gold is mined, lately it has been becoming increasingly difficult to extract the necessary gold volumes required for the market. Both obtaining gold from the depths of the earth, as well as discovering and exploration of new gold mining sites is an expensive and complicated process. Easily available gold resources have already been exhausted. The amount of gold to be extracted cannot be increased or decreased by a decision each year unlike in the oil market. Also unlike paper money, you cannot print extra gold. Overall, 3236 tonnes of gold were extracted in 2016 and 3233 tonnes the previous year.
• Gold recycling is prospective, although gold mining expenses often exceed the value of extracted gold. Gold is first and foremost recycled from old and outworn gold jewellery and items, and thanks to new technology, the profitability of gold from outworn electrical equipment is increasing.

So what really sets the value of gold jewellery?

• Production quality (the hands of the master are able to turn a less valuable piece of gold into expensive artwork)
• Incorporating precious and semi-precious stones – by the way diamond mines are under a sooner exhaustion threat than gold-  Earth’s diamond reserves will last for about 17 years.
• A gold standard (the higher it is the more expensive the gold item is)

Gold product standard

Pure gold, without impurities, is indicated by the number 999 °, which means that it is 99.9% pure precious metal. However, the use of pure material in the manufacture of jewellery is not possible because it is too soft and quickly wears out, so it is accompanied by a ligature or impurity. The ligature makes the gold harder and more suitable for processing.

How is the gold colour made?

The colour of pure gold is saturated yellow. The colour differs depending on impurities.

• Yellow, 585 ° carat gold is obtained by adding silver and copper to pure gold. Accordingly, the amount of silver in the ligature is 60% and copper 40%.

            For example, 10 grams of 999 ° carat gold yields 17.07 grams of 585 ° carat gold;

From which 7.07 grams is ligature. Whereas 4.24 g is silver (60%) and 2.82 g is copper (40%)

• Silver and copper are also used as a ligation for rose gold, but proportions are reversed, respectively: silver = 40% and copper = 60%
• White gold colour is obtained by mixing pure gold with palladium, but the resulting material is very soft, so most commonly used are ready-made ligature material pellets which provide higher material strength.

The highest standard from which the jewellery is made is 950 °, rarely 750 °, but most of the time, 585 ° carat gold is used because the jewellery made of it is harder, more durable and therefore lasts longer.