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A constant issue in the gold market is what influences the price. Most people logically believe the supply and demand figures in the physical gold market will determine the price.
However, the futures market in New York is the single largest place in the world where more gold contracts are traded than any other. The price at which the physical gold changes hands, in almost all cases, depends on the price at the New York exchange. Practically all gold bullion and gold coin dealers will base the price of their transactions on this price.
Therefore, the supply and demand at the NY exchange is probably the single most important factor (at least in the short term) in determining the outlook for the gold price. We can see large changes in the supply or demand in the physical market, but if the price does not first change at the exchange it is not likely to change the price of the physical gold.
Of course, in the longer term, supply and demand in the physical market will cause the futures market to change accordingly, but significant and sustained changes in the physical gold market are few and far between.
The foreign-owned gold stored in the gold vault at the Federal Reserve Bank of New York constitutes the world’s largest known concentration of monetary gold.
Fed buys dollars for yen->Raises the value of dollar, lowers the value of yen
Fed sells dollars for yen-> Lowers the value of dollar, raises the value of yen
The intervention is conducted with funds belonging to both the Fed and the Treasury. Since the size of the Fed’s intervention is small compared to the total amount of FX trading, it does not influence the demand and supply conditions in the FX market. However, it influences the market sentiment relating to the value of the dollar. The frequency of the Fed’s FX intervention varies.
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