Gold is used all over the world as a store of value. Gold price is oft referenced because it is continually traded, and this has been so for thousands of years. The spot price might fluctuate with market conditions, but it is judged as highly valuable
Here, we are going to analyze the nine factors that affect the price of gold for for investors who might be interested in gold trading.
- Global Crisis
Global economic and political factors affect the price of gold because it is considered the source of geopolitical and economic turmoil. When people lose confidence in their governments or market, the price of gold tends to rise, and the reassurance with their situation softens the market price.
The prices of gold may fluctuate but what you can buy with it remains stable for a long time. Hence, holding gold is used as a hedge against currency devaluation and inflation. Investors buy gold for holding when they can project that the value of their paper money is going to decline.
- Value of the U.S. Dollar
The U.S. dollar, one of the main currencies for international trade, has an inverse relation with the price of gold. When the gold is strong dollar is weak and vice versa.
- Central Bank Instability
When the central banks and other dominant banks go through a deficit problem, the paper currency tends to lose its value. Therefore some investors see holding gold as a way to protect their wealth ,which invariably boosts the demand and price of gold.
- Interest Rates
When the interest rates increase, people trade their gold to get funds for other investment opportunities. When the interest rates decrease, the gold price goes up again because of low opportunity cost in gold holding compared to other options.
- Government Reserves
Central banks hold gold as a reserve currency along with their paper money. When they buy more gold than they are selling, this takes the prices of gold higher.
- Jewelry and Industry
Not just a valuable investment but half of the demand for gold is for jewelry from around the world. India and China have huge gold reserves. About twelve percent of gold demand comes from its industrial application.
- Gold Production
Annual gold production is about 2,500 metric tons while annual gold supply to the world is estimated to be 165,000 metric tons. The cost of production can influence the price of gold. When the production cost rises, miners sells out their gold to get the benefit.
- Supply vs. Demand
By simple economic rule, when the demand for gold in the market increases the prices also rise high. However, unlike other currencies, the price of gold remains fairly stable for a long time and the fluctuations might be due to currency fluctuations or some uncertainties.
Gold will endure in the realm of men for a long time. With its value and occurrence remaining highly -prized, you can sure its worth will continue to soar.