6 Factors That Affect Gold Prices

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It’s said that gold has been and still is a good store of value. That’s why many investors in the United States (US) and across the globe add gold to their investment portfolios. The extent to which you may want to include gold in your portfolio depends on various factors. Things like your affinity for risk and preferences affect how you may want to structure your assets and withholdings including gold.

But if you decide to invest in gold, you need to understand how it works first. It’s regarded as a safe investment to make regardless of where you live or the market you’re in like in states such as Florida and others. Nonetheless, realize that gold investments too come with risks. Therefore, investing in gold doesn’t automatically guarantee profit.

If you want to be a good investor, you must understand what drives gold prices. Handy resources like Gainesville Coins tracks the spot gold price so that you’re always in the loop regarding gold price changes. That said, below are some of the factors affecting gold prices. Continue reading to learn more.

Supply And Demand

Gold prices, like any other good or service, are subject to the laws of supply and demand: (i) the higher the price, the lower the quantity demanded, and (ii) the higher the price, the higher the quantity supplied.

Equilibrium, which is where demand and supply interact, then determines the market price. This is arguably one of the most important determinants of gold prices since demand and supply forces produce market shifts that influence gold market prices. If demand for gold increases, gold prices will rise. Gold's price, on the other hand, will almost surely decline if it is oversupplied.

Inflation

The growing cost of goods and services is referred to as inflation. Economists believe that the value of fiat money is eroded as a result of this process. On the other side of the coin, inflation at controlled levels signifies a healthy growing economy.

In an inflationary economy, it’s believed that investors prefer gold to cash because it’s generally stable. As a result, both the demand for gold and its price goes up during such times.

Uncertainty

The majority of investors despise economic uncertainty and would gladly pick safety over risk in such circumstances. Uncertainty is bad for investors since it makes it difficult to forecast future outcomes. As a result, gold is frequently employed as a hedge against inflation for it retains its value effectively regardless of economic conditions – it's said to be one of its advantages.

Yes, quantifying the consequences of uncertainty is difficult, yet it can nevertheless influence pricing, particularly in stock markets. During a recession, when other asset classes such as real estate, stocks, and bonds are likely to collapse, demand for gold is projected to rise. War and political instability are two examples of scenarios that might cause uncertainty in investment circles.

Currency Movements

Gold prices can fluctuate due to currency swings, particularly the US dollar. The US dollar has an inverse relationship with gold. The US dollar is the world's reserve currency and is possibly the most widely used denomination. When the value of the US dollar falls, gold prices rise because the rest of the world's currencies gain value.

Investment Demand

Remember that gold investing comes in many forms. One of the most common gold investment vehicles is exchange-traded funds (ETF). They function just like trusts. They’re traded on an exchange, just like you would trade stocks. ETFs aren’t only represented by private entities, but mining companies can also own and trade ETFs.

Now, demand for ETFs fluctuates as well. ETFs have a lot of gold reserves too and the demand for gold from these investment vehicles can cause significant price movements. ETFs are relatively common, especially in America and the market is believed to be still growing.

Global Jewelry And Industrial Demand

Large countries, such as the US, India, and China, require and purchase a large amount of gold for jewelry production. Even if the changes aren't dramatic, their cumulative desire for gold can impact price changes. The price of gold is affected by global jewelry demand, therefore if global jewelry demand rises, the price of gold will likely rise as well. If demand falls, prices will fall as well.

Additionally, keep in mind that gold has some industrial applications, which contributes to the global demand for gold. Electronics and gadgets, for example, can have gold components. As a result, gold prices are affected by global industrial demand too.

Conclusion

If you want to be a successful well-rounded investor, you must first grasp how precious metals like gold work. Prices are subject to change. Even though gold is said to be the most stable of all precious metals, it’s nonetheless vulnerable to price fluctuations here and there. The insights above hopefully walked you through the multiple factors affecting gold pricing in the market. Best of luck in your investment journey!