Gold Price Factors
Gold Price can fluctuate to a great degree depending upon elements that may or may not be directly related to gold itself. The Factors that affect Gold Price can also vary and each one can affect prices to different degrees. Furthermore, these factors can combine or also be contingent upon each other. Knowing some of the factors that can affect the price of gold can help you determine when it is wise to invest in gold so that you get the best return on your investment.
US Dollar Value / US Economy
The United States economy is intricately tied to ever other economy in the world as is the economy of any other country with as much influence in the world. If the United States economy experiences instability, it will be felt throughout the world in all kinds of areas, including the price of gold. This means that the price of gold will be affected negatively if the economy slows down.
Of course, the economy is also tied to the value of the US dollar. In fact, the dollar value is probably the strongest factor affecting the price of gold. In order to keep the value of gold low and controlled, the dollar has to be strong. The price of gold rises when the dollar is weak. The reason gold is lower in price with a strong dollar is because people are spending, investing and trading in dollars. However, when the dollar is weak, people will begin to hoard and invest in gold bullion, which makes it rare and hence more expensive.
Inflation and Interest Rates
Inflation and interest rates are also very important factors in determining the price of gold. In some cases, inflation is considered the most important factor in determining prices as gold is used more as an indicator of wealth and value without having any other practical uses. With this in mind, people begin to look for other sources of trade or consumerism when the value of their currency depreciates.
Not surprisingly, interest rates are also correlated with the price of gold. Higher interest rates typically mean that the price of gold will fall. This happens because competition among lenders willing to lend money with a high demand becomes very fierce. Private investors are not in the market to lease gold, so they are willing to buy a product that does not have a profit yield. In this way, interest rates can become predictors in the price of gold.
The amount of gold produced at any given point in time is also a major factor in its value. If there is not a lot of gold in production but there is a huge demand for it, the price will be higher. However, there are other things to consider when it comes to supply and demand. It may not be simply a matter of the elements that can prevent a steady production of gold.
For instance, gold miners can decide to strike, so gold can become rare in the interim. Also, those who own the means to mine gold may decide to slow down production if production costs rise. They can let go of workers or get rid of some machinery in order to cut costs. In the meantime, the price of gold rises. Political matters can also have an effect on gold production. Wars, terrorist attacks and other fears can slow down gold production.
Demand of Gold Jewelry in China and India
While the United States economy and dollar value has a lot of influence over the price of gold, there are two other countries that also have a huge influence on the price of gold. China and India are the biggest consumers of gold jewelry in the world. The demand for gold has increased in these two countries over the past few years, which means other areas may have a difficult time getting a good supply with this increased demand.
Reserves in Central Banks
Bullion is used in central banks as a hedge against inflation, which means the reserves in central banks have a direct effect on the price of gold. Furthermore, interest rates and investments also are determining factors in how much gold cost. When central banks have higher interest rates, the price of gold will fall in order to encourage people to invest in it. However, low interest rates tends to be a better predictor that people will turn to gold investment rather than paper money.
United States citizens have seen how the debt crisis in the country has had an adverse effect on everything from the price of food to the job market. It should come as no surprise then to find that a debt crisis is also a major factor in the price of gold. However, this effect can work both ways. For example, when a country experiences a debt issue, many people may begin to think that gold presents a safe investment since it is not paper money that will be spent, saved or invested.
However, a debt crisis can also have the opposite effect. Countries that are experiencing debt issues may be forced to sell off some of their gold supplies to settle their debts. While this may limit the supply within the indebted country, the sale of gold actually does put the gold on the market, so there is more of a supply to fulfill a demand. Still, other countries may also try to make gold purchases in order to hide a weak economy.
Fluctuation in Currencies
It may come as no surprise that fluctuations in the United States economy will have an effect on the price of gold. However, any major currency throughout the world can also affect the price of gold. If an event is especially significant, the price of gold can become unstable until investors figure out where the instability will end. In many cases, when the currency of a major country begins to depreciate, the price of gold will begin to increase.
Author: David Kennedy Google+