Understanding Gold Market and Its Price Volatility

By: Ahmed Abu-Hajar, Ph.D. 

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(March 2026)  

During the month of January 2026, the price of gold rocketed from $4300 to $5,500, roughly a 30% increase in one month. Then the gold price sharply fell to $4,400 within a week of its high. This unprecedented price volatility is moved by many factors that savvy investors need to be aware of. This article demystifies hidden forces that are behind gold price volatility. Those forces go beyond the power of central banks, investments and the supply-demand dynamics. The recent US-Israel Iran war has proved the hypothesis presented in this article as the price of gold continue to drop during the war, another unprecedented and irrational move. This article serves investors and readers the opportunity to grasp the forces that influence gold prices, and it shows natural, as well as manufactured, invisible hand that causes gold market dynamics. 

This article starts with explaining the gold market segments (jewelry, investment, central banks and industrial use) that define the gold global demands, and it explains the resources and global mining companies that supply gold demands. Then, it explains the process of setting up global gold prices. The current gold market is set for natural as well as manufactured invisible hand that affects the gold prices. The manufactured invisible hand is based on the author hypothesis and explains how the gold prices are set to control economies due to geopolitics. This hypothesis is tested to be true during the US-Israel Iran ware. Where the gold prices is dropping while cutting oil supplies may trigger global recission and war overspending may trigger inflation and increase US budget deficit. Savvy investors and readers with a good understanding of the gold market may jump to the analysis section where the dynamics of the current gold market and trends are presented. Other readers who would like to have a good grasp of the gold market, this article would serve as an excellent starting point, which will lead to the author prospectives and analysis on the current gold market. 

For investors who would use this article to make financial decisions. Please refer to the legal disclaimer section at the end of this article. 

Gold as a monetary currency has been around for over 5000 years. All ancient civilizations including Egyptians, Mesopotamians, Greeks, and Romans used gold, and silver, as mean to do trades and exchange goods. Gold was the perfect currency for most of human history because of its scarcity, divisibility, durability, and resistance to corrosion. Empires used gold for millenniums to fund their armies, collect taxes, and settle international trade. Initially, ancient Egyptians and Romans harvested gold from easily accessible riverbeds deposits. But later, it was expanded into more sophisticated mining techniques. Gold was recognized to be scarce, and empires also accumulated gold reserves mostly through military conquest. Gold extraction declined during the medieval era and only saw a significant increase after the discovery of the Americas. Because of the technological advancements after world war II,  two-thirds of ever-mined gold was extracted after 1950 according to the World Gold Council (WGC). Through human history, approximately 216,256 Ton (SI metric Ton) of gold has been extracted already. This is roughly 80% of all extracted and unharvest gold. The remaining 20% of unmined underground gold is estimated to be around 54,770 Ton. The total extracted gold through human history remains preserved. 

The gold market is distributed into four market categories that are jewelry, investments, central banks and industrial use. Roughly 45% (97,149 Ton) of all extracted gold is treasured for jewelry, where 23% (48,634 Ton) is bullion stored for investments either as gold backed ETFs, bars or coins. The central banks own 17% (37,775 Ton) as a gold reserve to support national currencies and act and a financial buffer. The remaining 15% (32,727 Tons) is apportioned for industrial use, mostly CPUs, smart phones, and electronic components.

Before you start investing, you need to have some basic general knowledge that are required. Please visit the following link for more information. The investor.gov has an excellent overview of the multiple investment options. You may follow this link: https://www.investor.gov/introduction-investing 

  A- Financial knowledge:  When investing in the stock market, financial knowledge is more valuable than money itself. For beginners, financial literacy is the compass that guides you to make educated decisions. Investing in the stock market goes beyond price movements, volatility and media noise. Understanding how market functions, being able to read earnings reports, utilizing valuation metrics and handling risks are more vital to building your wealth. Without a foundation in financial knowledge, even the most promising opportunities can turn into costly lessons. The difference between speculation and investing lies in comprehension: Not only do you need to know what stock you are buying, but also why you are buying it. 

B- Knowledge in business operation: Every business is a living organization, and to survive depends on how well it runs its operations. The investor must go beyond just analyzing financial ratios; he must understand the mechanisms that drive the business. The investor must have a grasp of the fundamentals of the business operations; from research and development processes that fuels innovation, to marketing strategies that build demand, to sales processes that convert that demand into revenue. Manufacturing efficiency, supply chain reliability, and managerial competence often determine whether a company sustains growth or erodes under pressure. By understanding how products are created, promoted, and delivered, investors can better judge not just what a company earns, but how and why it earns it. Thus, turning surface-level investments into informed ownership.

C- Technical knowledge of companies that you invest in: Successful equity investing goes beyond reading balance sheets, but it requires understanding of the business itself. A well-informed investor should grasp the technical and operational realities behind the companies he is buying. Investing in a software firm without understanding the fundamentals of software development, or in a pharmaceutical company without insight into the drug discovery and approval process, is like navigating without a map. The same applies to restaurants, manufacturers, or energy producers. Each industry has its own value drivers, risks, and performance indicators. Technical knowledge doesn’t mean being an expert, but it does mean knowing enough to evaluate how a company truly creates value. In the stock market, the more you understand what a company does, the more confidently you can judge what its stock is worth.

D- The stock market: The stock exchange market, such as NASDAQ or NYSE, is where companies’ shares are bought, exchanged and sold to the public in real time. A company’s share (or stock) represents a fractional unit of ownership to that company. It is a legal claim on its assets, earnings, and voting rights. The company must go through initial public offering (IPO) first, before being listed in the market and being traded. IPO is a rigorous process that goes under extreme scrutiny by regulatory authorities such as the U.S. Securities and Exchange Commission (SEC), and IPOs are backed up by investment banks as underwriters. Once a company is listed, its shares are bought and sold in the secondary market, where investors exchange ownership through regulated brokers and digital trading platforms. Prices are determined continuously by supply and demand, as buyers place bids and sellers post offers. The intersection of these orders sets the market price. Behind every trade lies clearinghouses and custodians that ensure liquidity, settlement, and transparency. This system allows investors to enter or exit positions instantly, making equity markets one of the most efficient and dynamic mechanisms for capital allocation in the global economy.

E- The essence of shares price: The most basic principle of making money in the stock market money is buy-low sell-high. To make profit, the investor must sell shares at higher than the buying price. The investor anticipates the share price will increase from the buying price. However, it does not always go that way. Sometimes, the share price will go down and will remain down, indefinitely. Other times, the company may bankrupt. If so, the share price would often go down to zero and lenders would own available remaining assets, leaving shareholders with nothing.

F- The need for vision and investing plan: Before buying the first share or opening a brokerage account, every successful investor starts with a vision. The vision is a clear understanding of why you are investing and what you are aiming to achieve. A long-term vision turns short-term volatility into opportunity, and a structured plan transforms saving into strategy. Without that vision and planning investing becomes speculation which leads to high-risk gambling. Start by making realistic goals, and then you need to build a plan on how to achieve those goals. 

 In the following, we will list factors that affect share price of a given company that the investor must be aware of.  In general, those factors are divided into intrinsic factors, industry specific factors, macroeconomic factors, market sentiments, and trading factors. 

A- Intrinsic factors: The intrinsic factors (or the fundamentals) of a company are factors that determine the real value of the company. They provide quantitative values that lead to current company’s performance and prediction over time. A public company is required to file a quarterly earnings report SEC Form 10-Q as well as an annual report SEC Form 10-k to the public and US Securities and Exchanges Commissioner (SEC). The quarterly earnings report includes a summary of financial performance (business fundamentals), including an income statement, balance sheet, and cash flow statement for a given quarter. The annual report is a comprehensive yearly publication that includes performance of the past year, letters from leadership, detailed financial statements, and information of futuristic plans and activities. The investor must read those reports to determine the real value of a company over time. Some of those fundamental values are listed in the following: 

1. Revenue: Revenue is the total income that is generated by selling products and services. It provides income for total costs, interests and profits.

2. Earnings: Which are the net income or profit; Earnings are found at the bottom of the income statement. It represents the total profit for the reporting period after all expenses, taxes, and costs have been deducted from its revenue.

3. Expenses: Expenses refer to the costs during normal operations to generate revenue. The primary types of reported expenses typically include:  

· Cost of goods sold: Direct costs attributable to the production of goods and services, such as raw materials, direct labor, and direct overhead.

· Operational expenses: Indirect costs associated with the day-to-day running of the business. These are often categorized further into:

• General and administrative expenses: Include salaries for administrative staff, rent, utilities, advertising, marketing, and office supplies.
• Research and development (R&D) expenses: Costs incurred for innovation and the development of new products or services. 
• Depreciation and amortization costs: The allocation of the cost of tangible and intangible assets over their useful lives.

· Non-operating expenses: Costs not directly related to the company's core operations, such as interest expense on debt and income taxes. 

Companies are required to provide a management's discussion and analysis where they explain the reasons for material changes in expense items between periods. This analysis helps investors understand the drivers of the company's financial performance.

4. Earnings per share (EPS): EPS represents the portion of a company's net income allocated to each outstanding share of common stock. Two primary types of EPS are presented in income statement: 

• Basic EPS: Which is the total income after paying any preferred stock dividend divided by the weighted-average number of shares.
• Diluted EPS: Which accounts for all potential common shares that could be issued through the exercise of stock options, conversion of convertible debt, or other convertible securities. The diluted EPS will always be equal to or lower than basic EPS.

5. Dividend: Which is defined as a proportional distribution of a company's earnings (profits) to its shareholders. Usually, dividends are paid per share. For example, company X would pay $0.24/share on a specified day.  

6. Assets: Which are everything the company owns or controls that has a monetary value and is expected to provide a future economic benefit or help generate revenue. Assets include cash, inventory, accounts receivable, investments, properties, machines, equipment, purchased intellectual properties (IP). Internally developed IP such as internally developed patents and trade secrets are excluded from company’s Assets.

7. Book value: Which is the residual value of a company's assets after all its liabilities have been paid off. And book value for shares is defined as the book value divided by total number of shares. 

8. Year-over-year (yoy) growth: The yoy growth indicates the growth of the current quarter over the same quarter in the previous year. The yoy growth provides insights to investors on company’s performance from year to the next, which may be used predict the company’s futuristic performance. The YOY growth is calculated by the following formula

9. Fundamental ratios: Fundamental ratios such as Debits/Earnings, Earnings/Revenues, and so on provide metrics to compare the performance of a given company to other companies and sectors. 

Basically, the fundamental factors give investors insights into how healthy the financial condition of a given company. An investor may extrapolate company’s performance and project its futuristic performance to make an investment decision. 

B- Market and industry factors: The stock price is affected by a company’s particular industry. The company’s particular industry and sector significantly influence investor expectations, shaping both risk perceptions and capital allocation decisions. The growth trajectories of a particular sector, such as the ones seen recently in artificial intelligence and semiconductors, contribute to a company’s price expansion which could present buying opportunities for investors. Competition within a particular sectoraffects a company’s ability to perform. Thus, educated investors must assess competition for a given company before buying its stock. Competition within a given company directly impacts it valuation. Companies with robust brands, proprietary technologies, or cost advantages are often more appealing to investors. Regulatory policiessuch as changes to taxation, tariff, trade restrictions or environmental legislation can either enhance or diminish profitability of given sector. For example, tariff may negatively affect retail companies that heavily depend on imported goods. Another example would be a investing in environmentally regulated industry such as oil drilling would be heavily affected. Finally, technological disruption plays a pivotal role as innovation can fundamentally reshape business models. Companies that swiftly adopt new technologies and respond to evolving consumer preferences generally are positioned for long-term success.

C- Macroeconomics factors: Stock prices don’t move in isolation, but they rise and fall in synch with the broader economy. Factors such as interest rates, inflation, GDP growth, monetary policy and employment levels collectively shape stock market. Therefore, investors should adjust expectations about future profits and risk accordingly. When central banks lower interest rates, borrowing becomes cheaper, fueling corporate expansion and lifting equity valuations. Conversely, rising inflation or tightening monetary policy can diminish purchasing power and compress profit margins, thus pushing stock prices downward. Global trade dynamics, currency fluctuations, and geopolitical tensions also ripple through markets, altering capital flows and investor sentiment. In essence, macroeconomics sets the backdrop against which every company operates.

E- Market sentiment & behavioral factors: While fundamentals shape long-term value, stock prices in the short term are often driven by psychology. The collective emotions of fear, greed, and speculation that ripple through markets affecting stocks prices. Investor confidence can send prices soaring in euphoria or plunging due to panic. The emotions effect is often outpacing the projection of a company’s fundamentals. News and media coverage ranging from earnings announcements to executive changes or corporate scandals can rapidly shift perception, triggering sharp swings in stock prices. Analyst ratings and forecasts add another layer of influence, as upgrades or downgrades from major institutions can amplify momentum in either direction. Speculative trends detach valuations from intrinsic worth. For example, the AI boom speculation would lead high tech stocks to new highs leading to bull market; on the other hand, speculations of AI bubble and over valuations lead to dramatic overreacting price plunging due increase in tariff taxations. Together, these psychological behavioral forces remind investors that the market is not a machine of logic but a mirror of human emotion, where perception can move prices long before reality catches up.

E- Technical and trading factors: Beyond fundamentals and sentiment, stock prices are also shaped by the mechanics of trading itself. The push and pull of the supply and demand within the market affects the stock price. When a stock experiences a surge in trading volume, even small shifts in buying or selling pressure can drive dramatic price movements. Institutional ownership plays a major role as well, as large funds and asset managers control significant capital, and their collective actions can influence both liquidity and market direction. Corporate actions like share buybacks and secondary offerings further affect valuation dynamics. Buybacks reduce the number of shares outstanding, often boosting earnings per share (EPS) and signaling management confidence, while new share issuances dilute existing ownership and can temper prices. These trading and structural forces operate beneath the surface of market headlines, yet they often explain the sharp moves that fundamentals alone cannot.