Global Gold Price: Influencing Factors and Impacts on the Saudi Market

The global gold price is the reference price traded in international financial markets for one ounce of gold, often expressed in US dollars. Spot gold prices are determined by major exchanges such as the London Bullion Market Association (LBMA) and the Chicago Mercantile Exchange (COMEX), where the price is agreed upon through large buy and sell transactions between banks and global financial institutions. In the Kingdom of Saudi Arabia, the global gold price plays a pivotal role in determining local gold prices, whether for jewelry, bullion, or even in evaluating the performance of local mining companies like "Ma'aden". Although gold is not traded as a separate product in the Saudi stock market (Tadawul), many Saudi investors closely monitor it due to its direct impact on mining sector stocks and use it as a reference when investing in precious assets. Furthermore, the peg of the Saudi riyal to the US dollar makes the impact of changes in the global gold price more evident in the local market, as gold prices in riyals often move in line with its movements in dollars.

The global gold price is determined through the mechanism of supply and demand in international financial markets. Each business day, official pricing sessions are held at the London Bullion Market (LBMA) and the Chicago Mercantile Exchange (COMEX), where major financial players—such as central banks, sovereign wealth funds, and commercial banks—submit buy and sell offers. The price is settled based on the balance of the quantities supplied and demanded. The final negotiated price is known as the "settlement price" or the spot price of gold. This process takes into account global economic factors such as inflation rates, interest rates, geopolitical tensions, and the demand for gold for jewelry or official reserves. This spot price serves as a reference for gold pricing around the world, including in Saudi Arabia, where the global price is converted to Saudi riyals after accounting for conversion fees and local traders' profit margins.

Several economic factors play a crucial role in determining the trends of the global gold price. First, global interest rates—especially those set by the US Federal Reserve—directly affect the gold price; as interest rates decrease, the opportunity cost of holding non-yielding gold declines, supporting its rise. Second, global inflation makes gold more attractive as a hedging tool to protect purchasing power. Third, the strength or weakness of the US dollar inversely affects gold, as a declining dollar value increases gold's appeal to international investors. Fourth, political tensions and geopolitical crises stimulate demand for gold as a "safe haven," as seen during recent crises in Ukraine and the Middle East. Finally, demand from central banks—which sometimes rush to increase their gold reserves—raises the global price and provides additional support for upward trends.

The global gold price is influenced by a complex balance between supply and demand. On the supply side, most gold production comes from mines in a limited number of countries such as China, Australia, Russia, and the United States. Expanding production requires massive investments and long timeframes, making supply slow to respond to price changes. On the demand side, consumption is distributed between jewelry manufacturing, investment demand (bullion and coins), and demand from central banks and financial institutions as part of their reserves. In recent years, there has been a growing trend among central banks—especially in Asia and Europe—to increase their gold holdings, leading to a significant rise in global demand. Additionally, financial crises and economic uncertainty drive individual and institutional investors to increase their demand for gold as a hedging tool, further boosting prices in international markets.

Monetary policies, especially those adopted by major central banks such as the US Federal Reserve, are among the most significant influences on the global gold price. When central banks decide to lower interest rates, the appeal of fixed-income assets such as bonds diminishes, and investors turn to gold as a safe haven. Conversely, rising interest rates increase the opportunity cost of holding gold and put downward pressure on its price. In recent years, with increasing expectations for global interest rate cuts, we have observed record highs in gold prices. Additionally, quantitative easing decisions and liquidity injections into financial markets enhance the value of gold as a store of value against the erosion of purchasing power.

There is a traditional inverse relationship between the gold price and the strength of the US dollar. When the dollar weakens due to economic slowdown or expansionary monetary policies, the value of gold rises globally, as purchasing gold becomes cheaper in other currencies. Conversely, when the dollar strengthens, global demand for gold may decline, leading to a drop in its price. In the Saudi market, the riyal is pegged to the US dollar, making the impact of dollar fluctuations on local gold prices very clear. Any movement in the dollar, whether upward or downward, directly reflects on the cost of gold in riyals, thereby affecting purchasing and saving decisions for Saudi consumers.

Geopolitical events—such as military conflicts, political crises, or tensions between major powers—often drive investors to seek safe havens. Gold is the primary choice in such circumstances, as it retains its value throughout history and is not subject to default risks or financial market collapses. In recent years, events such as the war in Ukraine and escalating tensions in the Middle East have led to significant increases in gold prices, as both investment and institutional demand for gold have surged. Economic crises, such as recessions or hyperinflation, further enhance gold's appeal and lead to rising prices globally.

Gold is classified within the precious metals sector, which also includes silver, platinum, and palladium. Gold differs from other precious metals in that it is primarily used as a financial and investment tool and a cash reserve, while silver and platinum are more widely used in industrial applications (such as electronics and automotive manufacturing). In recent years, industrial demand for silver and platinum has increased, boosting their prices, while gold has maintained its appeal as a safe haven. Global mining companies, such as Barrick Gold and Newmont, dominate gold production. In Saudi Arabia, "Ma'aden" is the leading gold producer, with a significant portion of its financial results attributed to movements in global gold prices.

The movement of the global gold price is a fundamental reference for determining gold prices in the Saudi market. After converting the price per ounce from dollars to Saudi riyals, the price per gram in local markets is set, adding profit margins and manufacturing costs. During periods of rising global prices, the cost of purchasing jewelry and bullion in Saudi Arabia increases, which also reflects on the valuation of local mining companies. "Ma'aden", listed on the Saudi stock market under the symbol 1211, sees its profits and market valuation affected by movements in the global gold price. Additionally, rising prices prompt more citizens to consider gold as a savings or long-term investment tool, increasing gold trading activity in local markets.

Although gold is considered a traditional safe haven, there are many investment alternatives for Saudi investors. These alternatives include local stocks and investment funds, real estate and land, government bonds and sukuk, foreign currencies (especially the dollar), and even digital currencies like Bitcoin. Each option carries a mix of risks and returns; stocks and real estate may provide higher returns during economic recovery, while gold and bonds stand out during times of uncertainty. The investor's choice depends on their investment goals, risk tolerance, and expectations for economic conditions. Gold is distinguished by being a tangible asset with historical value and is suitable for hedging against inflation and financial instability.

During 2024 and 2025, the global gold price witnessed historic jumps. The price per ounce rose to unprecedented levels, surpassing $3,000 for the first time in the second half of 2025. Reports from Reuters and Deutsche Bank indicated that the average price per ounce could range between $2,450 and $2,950 in 2025, with expectations of rising to $4,000 per ounce in 2026. These increases are attributed to continued demand from central banks, global interest rate cuts, and rising geopolitical uncertainty. In the Saudi market, the price of 24-carat gold per gram ranged between 800 and 900 riyals at peak prices, reflecting the direct impact of the global price and currency conversion. These indicators reflect a changing reality that requires close monitoring by all parties involved in gold in Saudi Arabia.

Saudi investors incorporate gold into their investment portfolios in various ways: purchasing bullion and gold coins, acquiring jewelry, investing in mining company stocks, or through international financial instruments such as futures contracts or specialized investment funds. The primary goal of acquiring gold is often to protect against inflation, diversify assets, and reduce risks during periods of volatility. Gold is also used as a store of value due to its independence from payment commitments or fixed returns. Investors are typically advised to allocate a limited portion of their portfolios to gold, alongside other assets, to ensure balance and flexibility in response to global market developments.

The mining sector in Saudi Arabia is experiencing significant expansion, with "Ma'aden" playing a pivotal role in this growth. With increasing government interest in developing the mining sector as part of Vision 2030, substantial investments have been made to develop gold mines and increase local production. Rising global gold prices positively impact the profitability of local mining companies and stimulate further investment in this sector. Regulatory bodies, such as the Capital Market Authority, continue to monitor and update legislative frameworks to facilitate investment in precious metals and ensure transparency and investor protection.

In recent years, there has been widespread debate about whether digital currencies—especially Bitcoin—represent a true alternative to gold as a safe haven. Some investors believe that Bitcoin shares similar characteristics with gold in terms of scarcity and independence from governments, but it is characterized by much higher price volatility. In the Saudi market, gold remains dominant as a tool for hedging and asset diversification, while digital currencies are used by a smaller segment of investors seeking higher risks and potential returns. It is important to recognize that gold remains more stable and widely accepted globally, while digital currencies are subject to regulatory scrutiny and constantly changing legal requirements.