The gold price is traditionally expressed in dollars ($) per troy ounce (toz). But this can lead to misunderstandings. Gold has been considered as money for several millennia. The volume of gold in circulation has been relatively static over that period. The dollar has only been considered as money for several centuries. The volume of dollars in circulation has varied over that period. This variance has been dramatic recently with the money printing bonanza. It makes more sense to measure something who’s supply varies (dollar) against something who’s supply is static (gold). So instead of considering the gold price as say $1200 per toz, the dollar price can be considered as 1/1200 toz per $. This approach can help to understand what drives the gold price. Broadly speaking, the value of the dollar varies over time, but the value of gold remains static. This is reflected in the common analogy that a suit can be purchased today for the same amount of gold as a toga could be purchased for in Roman times. The same cannot be said for the dollar since its introduction!
Gold Price short term drivers
In the short term, the gold price is driven by government policy and geopolitics. The gold price can fall when import duties are levied by governments (as India in 2013) and when governments sell large amount of gold (as the UK did from 1999 to 2002). The gold price can rise when there is tension or wars between countries.
Gold Price long term drivers
Over the long term, the driver of the gold price is the volume of paper money in circulation. So as the volume of paper money in circulation increases (=inflation), the gold price ($ / toz) increases. It is very simply supply and demand. More paper money chasing a relatively static amount of gold drives the price up.
Physical Gold price versus Paper Gold price
It is estimated that the paper gold market is about 100 times as big as the physical gold market. At the moment the paper gold price determines the physical gold price. But the two prices may separate in the future, as the demand for physical gold increases.