Skip to content
Commodities

Commodities · M7 · 7 min

Gold and precious metals

Explain what moves the gold price, convert it into pounds, and compare it with silver.

In the news: “Gold hits a record” stories turn on interest rates, the dollar and central-bank buying. This lesson takes each in turn.

The essentials

Gold as a store of value
Almost all the gold ever mined still exists, so its price depends on how much people want to hold rather than on a year’s mining. Investors keep it as a store of value and a .
Real yields
Gold pays no interest, so holding it means giving up the real return on safe bonds. Higher tend to push gold down; lower ones tend to lift it.
The dollar
Gold is dollars, so a weaker dollar makes it cheaper for other buyers and tends to lift the price. In pounds, the price is the dollar price ÷ GBPUSD: $3,000 at 1.25 is £2,400 an ounce.
Central-bank buying
Central banks hold gold as a reserve with no issuer that could default. They bought more than 1,000 tonnes a year in 2022, 2023 and 2024, on World Gold Council figures. Buying on that scale can outweigh the pull of real yields.
Silver and the gold/silver ratio
Silver is used in electronics and solar panels as well as held, so it moves with gold but swings more. The is ounces of silver per ounce of gold: 80 with gold at $3,000 and silver at $37.50.

Return in pounds

£ return = (1 + r$) ÷ (1 + rFX) − 1

r$
the return in dollars
rFX
% change in GBPUSD (positive when the pound rises)
All Commodities essentials on one page →

How it works

1. Gold is kept, not used up

Oil is burned and wheat is eaten, but almost all the gold ever mined still exists, in vaults and jewellery. So its price depends mostly on how much people want to hold, not on how much is dug up each year. Investors keep it as a store of value and a : something to own in a crisis.

2. Gold pays no interest

Keep £1,000 in a savings account at 5% and you earn £50 a year; keep it in gold and you earn nothing. So when interest rates rise, holding gold costs you more in lost interest, and gold tends to fall. When rates fall, gold tends to rise.

3. Real yields

What matters is the interest left after inflation: the , which inflation-linked government bonds show directly. If bonds pay 5% and inflation is 3%, the real yield is about 2%. Gold is a real asset, so it competes with that real return rather than the headline rate.

4. The dollar

Gold is priced in dollars. If the dollar weakens, gold becomes cheaper for buyers paying in pounds, euros or yuan, so they buy more and the dollar price tends to rise. A stronger dollar does the reverse.

5. Central banks buy gold

Central banks hold gold in their reserves, because it has no issuer that could default. They bought more than 1,000 tonnes a year in 2022, 2023 and 2024, on World Gold Council figures. Big buyers who care little about price can outweigh the usual pull of real yields: in 2025 the gold price set 53 record highs.

6. Gold in pounds

For a UK investor the exchange rate matters too. GBPUSD is the number of dollars one pound buys, so sterling price = dollar price ÷ GBPUSD. Gold at $3,000 an ounce with GBPUSD at 1.25 is $3,000 ÷ 1.25 = £2,400 an ounce.

7. Returns in pounds

If gold rises 3% in dollars while the pound rises 2% against the dollar, a UK holder gains only about 1%: 1.03 ÷ 1.02 − 1 = 0.98%. A falling pound adds to the return instead. The same dollar link runs through oil, copper and most other commodities.

8. Silver and the gold/silver ratio

Silver is used in electronics and solar panels as well as held as an investment, so it moves with gold but swings more. The is gold’s price ÷ silver’s: with gold at $3,000 and silver at $37.50, one ounce of gold buys 80 ounces of silver. Traders use it to judge which looks cheap.

Worked example

Illustrative prices: gold is $3,000 an ounce, silver $37.50 and GBPUSD 1.2500. A UK pension fund holds 5,000 ounces. Over a month gold rises 3% in dollars while sterling rises 2% against the dollar.

  1. Price in pounds now: $3,000 ÷ 1.25 = £2,400 an ounce.
  2. Holding now: 5,000 × £2,400 = £12.0m.
  3. After the move, gold is $3,090 and GBPUSD 1.275: $3,090 ÷ 1.275 = £2,423.53 an ounce.
  4. Return in pounds: 1.03 ÷ 1.02 − 1 = +0.98%, so the holding is worth about £12.1m.
  5. Gold/silver ratio: $3,000 ÷ $37.50 = 80.

About +1% in sterling against +3% in dollars: the holding is worth about £12.1m.

Check yourself

8 quick questions on the explanation above.

Practice

New numbers every set. Misses and guesses go into your review deck.

In the interview

Answer out loud in under a minute, then compare.

Remember

£ return ≈ $ return − change in GBPUSD

Gold moves on real yields, the dollar and central-bank and investor demand; lower real yields and a weaker dollar usually lift it.

Next · M8Power, gas and the energy transition

Sources

Definitions and maths are standard textbook material; dated facts link to the sources above. Worked numbers are illustrative.