Gold has, since ancient times, been one of the great stores of value. It’s a precious material that is sought after worldwide. This precious material is used in various industries to make very precious items like arts, jewelry, coins, etc.
Many investors prioritize always investing in gold due to its ability to safeguard and possibly increase your investment. It is why it’s important to answer the question, “how much is a pound of gold worth.”
Gold has proven itself to be one of the most stable precious materials that an investor can dabble in. Its unique performance during economic crises makes it a must-add to portfolios.
Although the value of gold bars or coins is constantly changing, gold’s worth cannot be overemphasized.
Before we dive into the worth of one pound of gold, there are various essentials that we must cover as they help us understand the intricacies of the gold market. We would also be examining factors that help determine the value of this important metal.
Let’s dive in!
How is the value of gold determined?
Two models help investors determine the potential value of gold.
These models are:
Gold Spot Price
Gold spot price refers to the price at which gold can be bought and sold at this exact moment.
Though it’s important to know that the gold spot price is constantly fluctuating, the price 1 hour ago can differ from the current price. This constant fluctuation is due to many factors.
Although the gold spot price can refer to the price of gold per ounce, gram, or kilo, it is usually quoted in the U.S. Dollar with a price per ounce.
Hence, the gold spot price is dependent on the price of one troy ounce of gold. It, therefore, simply reflects the price at which investors, traders, and exchanges are willing to buy one troy ounce of gold.
The gold spot price is very important as it helps investors determine the resistance level and when to buy and sell. It also helps identify various trends in the gold market so investors can determine when the price of gold will increase and when it will decrease.
Gold Futures Price
In the United States, gold is traded in a direct exchange where the price can be set at various moments – COMEX.
Hence the gold futures price serves as a benchmark for the COMEX gold price. This price specifies a particular date in the future when the physical delivery of a specific gold amount will occur.
Investors invest in gold futures prices because of the beneficial option of trading without paying the full amount.
Instead of paying the full amount for the gold, both parties come together to make an agreement dependent on the gold spot price and weight. Rather than delivery immediately, the parties agree on a specific date in the future when delivery will take place.
How much is a pound of gold worth?
Gold is traded in troy ounces and not in pounds, especially in the U.S. and worldwide.
As of the time this article was written, one troy ounce of gold is $1859 To determine the worth of one troy pound of gold, we’ll multiply $1859×12, which is $22,308. The price of one troy ounce is multiplied by 12 because there are 12 troy ounces in one troy pound.
How to buy gold in Troy ounces?
Gold prices (Gold spot price and Gold future prices) are calculated in troy ounces. To avoid confusion when buying or selling gold, investors should use a troy ounce calculator.
Using a troy ounce calculator eradicates the confusion and stress of carrying out the conversion. It also reduces the potential of making mistakes in calculations.
Once an understanding of troy ounces has been acquired, traders will be able to easily invest in gold while diversifying their portfolio without any stress.
What is a Troy Ounce?
The Troy ounce is used in determining the weight of precious metals like gold. It is equivalent to 31.21 grams.
The main reason why troy ounce is used for precious metals like gold to date is that gold is measured using beam balances.
Hence using regular ounces to measure gold leads to the loss of about 2.75 grams per ounce.
As a trader, the first mistake to avoid in trading gold is using regular ounces for measurement instead of troy ounces. Using regular ounces will cause you to incur a major loss.
Factors affecting gold price
While, like most substances, demand and supply affect the price of gold, it stands apart due to its added value.
The additional value of gold makes its price not fully dependent on demand and supply but also on other factors.
Here are various factors that affect the price of gold:
Central Bank Reserves
The central bank does not only have paper currencies in its reserve. It also has gold. Every time the central bank moves its monetary reserves to gold instead of paper currencies, the price of gold increases by default.
Since many of the nations in the world have gold in their reserves, central bank reserves are one of the key factors that affect the prices of gold (spot and futures prices)
Also, the central bank’s decision to sell gold can affect the price of gold too. This decision affects gold prices due to the volume of transactions that occur.
Demand and Supply
The additional value of gold makes its price not fully dependent on demand and supply. But this doesn’t mean that demand and supply do not have a hand in gold spot prices and gold future prices.
To a certain extent, an increase in the demand for gold will lead to an increase in gold prices. So an increase in the supply of gold will reduce the price of gold to a certain extent.
Gold is one of the precious metals that are always continually in demand due to its numerous uses, so the price of gold increases from time to time.
Gold prices also react to inflation. People prefer to hold money in gold rather than in paper currencies during inflation. This preference for gold over paper currencies in inflation is because as inflation persists, the currency’s value continues to decrease.
Holding paper currencies will thus lead to a huge loss. On the other hand, despite its fluctuation, gold is considered quite stable, especially during an inflation crisis.
The United States Dollar is one of the most powerful currencies globally, which is also widely accepted.
Gold is a precious metal that is dollar-denominated because, for this reason, gold is generally inversely related to the current value of the U.S. Dollar.
With a strong U.S. Dollar, the price of gold becomes weaker and more controlled, meaning fewer fluctuations. On the other hand, a weaker U.S. Dollar drives the price of gold higher due to the increase in demand for gold that occurs whenever the U.S. Dollar is weak.
This increase in demand usually occurs because traders can purchase more gold whenever the dollar is weak. So whenever the dollar is weak, traders begin to buy gold rapidly.
Hence, gold is seen as a hedge against inflation. When there is inflation, the U.S. Dollar falls, and the price of gold increases due to demand. So as inflation continues to persist, the price of gold keeps getting higher.
The production of gold also affects the price of gold. However, the production of gold hasn’t increased much as it costs more to produce less gold. It’s also a factor that affects gold prices.
Jewelry and Industrial Demand
Jewelry accounts for most of the demands of gold that occur.
Hence due to the law of supply and demand, as demand for jewelry made with gold continues to increase, the price of gold will keep increasing.
Industrial demands also affect the price of gold.
Most industries use gold to manufacture their products, and when demand for these products increases, the price of gold increases.
Gold has protection capabilities which makes it a safe go-to whenever there’s economic uncertainty or political instability.
The protection capabilities of gold can increase the price of gold as investors will turn to invest in gold to help them protect their wealth and investment.
Another case where the protection capabilities of gold lead to an increase in price, is the fall of the market. It could be the real estate market or crypto market.
How To Invest In Gold?
There are various ways investors can invest in gold, including Gold Bullion, Gold Futures Options, Gold Mining Stock, and Gold Fund.
Let’s examine each of them:
Gold Bullion refers to the actual yellow metal in bar or coin form. Individuals can easily access gold bars or coins from precious metal dealers or a bank.
Investors usually prefer coins over bars, but whichever one works as an investment.
Since gold is a precious metal, you want to ensure that you’re buying from a reputable legal source.
Another caution you want to take is to ensure that you have a safe place where you can keep your golds to prevent loss.
You also want to ensure your gold after purchasing it.
Gold Futures Options
This option involves contracts that serve as the right for investors to buy or sell gold at a specific price for a certain amount of time.
It is a great option when investors have examined if the price of gold is going higher or lower.
Gold Mining Stock
Gold mining stock is another way to invest in gold. Although the success or failure of this investment is dependent on mining companies and how they share their stocks.
The option of buying gold bars or coins has various hassles, which lead to the option of investing through Gold Funds. This option is for investors who want to enter the market slowly.
Mutual funds and exchange-traded funds are more liquid commodities that assist with easy entry into the market.
Gold Fund is a gold ETF.
Is gold a good investment?
Yes, gold is a good investment.
Although the price of gold is volatile in the short run, it continues to retain its value in the long run.
Also, it’s a great hedge during inflation crises which makes it a great investment for investors.
Plus, it’s a great portfolio diversifier.
How do I purchase physical gold bars?
You can purchase physical gold bars from retailers online.
It would help if you bought from licensed retailers online to avoid complications. There are various licensed gold bar sellers online where you can get gold from.
Should I buy gold bars?
If you are investing on a large scale, then you can go ahead and buy gold bars.
Gold bars are a great way to invest in gold, but it’s a better option for investors investing on a large scale or seasoned investors who already have experience in the market. However, gold bars are not easy to sell like gold coins.