Earth is not round. Neither flat. It is an oblate spheroid, but we model it as if it was round. In economics and finance, we also use a lot of models. We need to simplify reality – abstracting from some accidental features enables us to focus on the essence of things. When we analyze the concept of a horse, we can ignore its particular color.

When we model gold prices, we also abstract from some factors. In modern complex economies, everything is interdependent. But we cannot fall into nihilism and say that everything affects everything, including the price of gold. There are some casual relationships – and some drivers are more important than others.

In this edition of the Market Overview, we focus on the most significant drivers of gold prices. We distinguish three such factors – and we examine how they affect the price of gold. In general – and in the first four months of 2018 in particular. Knowing what really impacts the gold prices enables investors to make better decisions. They can skip the analyses which concentrate on the gold mining supply or the average production costs – and focus on the true factors.

Although we argue that there are only few key drivers of the gold prices, we show that it is extremely difficult to model the price of gold. We do not offer oversimplified solutions, as many analysts do. Instead, we take our time to explain how the gold drivers are really interconnected – and how to use this knowledge in the gold investing.