Some of The Factors That Affect the Prices of Gold
Gold is recognized all over the world while determining the price of their currency. The gold price is also stated as per the value of the currency, for example in US dollars in the USA and its price can also vary depending upon the market dynamics.
Following are few factors that can influence the price of gold that every investor on gold must understand.
- Global crisis
If people loose trust on their government or on the financial market then gold bullion price may tend to rise. Gold is considered as an instrument of safety and whenever any global turmoil take place, people consider investing in gold. As an example, when Russians moved into Ukraine the gold price shot up and also it softened in the beginning of first gulf war.
Gold is used as hedge against the inflation trend or during devaluation of currency. The value of currency may change however what an ounce of gold can buy may remain more or less stable for a long time. That is because gold is out of politics, wars etc. It is considered to be low risk instrument during fluctuating currency. When value of paper money decreases people will be encouraged to buy gold.
- US dollar’s value
US dollar is considered to be one of the most stable currencies of the world and most of the trading is done on the basis of US dollar. The gold price and the strength of US dollar is inversely proportional i.e. if dollar is stronger then gold price will go down and vice versa.
- Instability of central bank
In every country, the country reserve is in certain bank. For instance, in the USA it is Central Bank, in European country it is European Central Bank, Swiss National bank or Bank of Japan etc. In case there is any kind of instability in bank reserves, people try to depend on gold and the demand for gold rises.
- Interest rates
Gold as such do not pay any interest however any bond or saving account pays. If the interest rate of these investment increases then the gold prices gets softened. Also, when interest rate declines then gold price tends to rise up.
- Government reserves
All the national banks keep certain amount of gold as well as paper currencies as a reserve. If they start buying gold in more quantity then gold price shoots up.
- Production of gold
If the production of gold declines than the demand then it can increase the price of gold.