Today, like most commodities, the price of gold is driven by supply and demand as well as speculation. However unlike most other commodities, saving and disposal plays a larger role in affecting its price than its consumption. Most of the gold ever mined still exists in accessible form, such as bullion and mass-produced jewelry, with little value over its fine weight — and is thus potentially able to come back onto the gold market for the right price. At the end of 2006, it was estimated that all the gold ever mined totalled 158,000 tonnes (156,000 long tons; 174,000 short tons). This can be represented by a cube with an edge length of 20.2 metres (66 ft).
The actual price of gold is determined by how much gold the World Gold Council is willing to sale. If they are willing to sale a large amount of gold, the price of the gold will still be high but the difference in the price will be noticeable, this is due to the availability of the gold. If a larger amount of gold is available the price will be controlled by the buyer. If the World Gold Council decides to sale a small amount of gold the price will increase at a noticeable rate because acquiring the gold will become a more difficult task, due to the small amount available. If the World Gold Council decides to put all of its gold on sale the gold will lose majority of its value, because everyone will have access to it.
Given the huge quantity of gold stored above-ground compared to the annual production, the price of gold is mainly affected by changes in sentiment (demand), rather than changes in annual production (supply). According to the World Gold Council, annual mine production of gold over the last few years has been close to 2,500 tonnes. About 2,000 tonnes goes into jewelry or industrial/dental production, and around 500 tonnes goes to retail investors and exchange traded gold funds.
Article Source: en.wikipedia.org