The price of gold or the Gold Spot Price is grossly misunderstood these days. Many assume it is whatever the stock market or the London Fix say it is. However there are those that wonder about the differences between what is bought and sold on the exchanges and the real physical metal that comes out of the ground.

In some ways it is not hard to understand why a great number of economic observers “don’t get” gold, and refer to it as a “barbarous relic” as the economist John Meynard Keynes once called it in the mid-twentieth century. One reason for this idea is that for some time now we have been living in a “paper” economy and in many cases a digital economy which only exacerbates the problem. In our present economic environment, the rules are created by government along with big banks and other financial entities like mutual fund companies which allow the “paper” economy to be controlled and manipulated. This system stands in stark contrast to precious metals like gold and silver that exist in finite quantities and have to be mined from the earth as opposed to paper gold which is created at the push of a button.

In the world of stock trading there is a practice called long/short selling that more resembles something out of Las Vegas. Going long on an investment means that the investor has purchased a stock believing that the price will go up in the future. When an investor goes short, they expect the share price to drop. Short selling is the sale of a security that isn’t owned by the seller, but that is promised to be delivered. Think of a short sale on a house where the owner is underwater on a house and the bank holds title.

This paper economy “Twilight Zone” is manifest on the commodities exchange in long/short selling, where “paper” or digital gold is bought to a degree that far exceeds the amount of gold on the planet. Gold contracts on the exchanges are supposed to be redeemable in gold and actually deliver the physical metal. So one would think they would keep enough gold on hand to meet the contracts but this never happens. In fact it has been said that 99 times as much “paper” or digital gold is bought on commodities exchanges such as COMEX, as there is in actual shipment of physical gold.

In the realm of supply and demand there is a push/pull relationship between the amount of what is available and the public appetite for that thing. So as demand rises for a particular good or service, the supply of that good is eaten up and diminishes, which in turn drives up prices. This supply and demand equation is the same for many commodities. As the population of the earth grows with each passing day, demand for the most essential materials are reducing the supply, and brings about increased prices. So when the Federal government prints Federal Reserve Notes beyond the public appetite then its value falls. This is seen in the apparent rise in the price of gold while in actuality it is the value of the Dollar that has fallen.

It is important to know the difference between the value of gold and the gold spot price.