There are four typical components that are used when it comes to assessing gold’s real value. To understand what gold is actually worth, it needs to be considered in all four contexts:
WHAT IS THE REAL VALUE OF GOLD?
Monetary value is understood in the fact that gold is money and not a fiat currency, meaning that its purchasing power remains relatively stable. In short, it can’t be printed.
Commercial value is best estimated by using supply and demand, monetary value and a price to monetary valueratio. However, it is difficult to obtain an exact commercial value because of fluctuations in the value of currency and market uncertainties.
Cultural value is based on the systems and standards of value in a given country and is therefore highly subjective. This makes it difficult to accurately estimate the cultural value of gold, though certain groups of people will value gold higher based on how much use they find for it. Additionally, gold objects that have been used by people of significance, or that hold sentimental value will be worth more.
The value placed upon gold as a result of being a collectable or historical artifact can be tremendous. Coupling gold’s inherent value with the age and rarity (collectability) of something else such as the likeness of a famous athlete or a piece of jewelry worn by someone of royalty can cause the value of that particular piece of gold to be much higher than it would be on its own merits. In this case, you can think of gold’s value as being determined more so by a third party, then simply that of a buyer and seller
HOW IS THE PRICE OF GOLD DETERMINED?
One of the ways the price of gold is determined is by using a process called gold fixing.
Gold fixing occurs twice per a day and is conducted by the London Gold Market Fixing Ltd, and is designed to set the price of gold for the purpose of settling contracts in the London Bullion Market. It’s also intended to informally provide a universally recognized rate for pricing gold products throughout the world markets.
The “Gold Fix” is conducted in U.S. dollars, Pound Sterling (GPB) and the Euro daily at 10:30 a.m. and 3 p.m. via telephone conference.
The spot gold price refers to the commodity’s value within a given 24-hour period, where a “spot transaction” involving gold would involve a settlement price derived from that same business day. In contrast, a futures contract can involve terms that are agreed upon, but delivery and/or payment can occur at a later date. However, the spot price of gold is not regulated, instead being derived through quotes from major banks and trading institutions
Futures contracts involving gold as the specified asset mean that there’s an agreed upon contract to sell that gold at a specific price but where delivery of the gold and payment for it won’t occur until a future said date. The risk for both sides is that the buyer hopes or has reason to believe that the price of gold will increase during that time while the seller assumes the opposite. This type of market speculation can have an actual impact on the price of gold.