What affects the price of gold?

The price of gold is based completely on supply and demand.  There is a limited amount of gold available, with less new gold available each day.  There is a finite amount of gold buried in the world.  Because the supply is limited, if you want a piece you have to convince someone to part with what they have.  If you are able to meet their price, yay, now you own gold.

Gold has no utility value and produces nothing.  I know lots of investors that swear by gold as “inflation hedging” but if you compare the price of gold to annual inflation you’ll see there is no correlation.  There might have been some inflation protection when the US was on the gold standard but that ship has sailed.

Two of my favorite Warren Buffet quotes:

"Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."

"I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today's market prices about $7 trillion – that's probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils (NYSE:XOM) and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I'll take the farmland and the Exxon Mobils."