What drives the price of gold? While many people think that the jewellery industry is in charge of how gold is priced and why the value of gold increases or decreases depending on the time of year, there are actually many factors attributed to this. With gold being highly sought after by the jewellery, medical and technology industries, where does that leave investors? Do gold investors have a part in the price of gold? What factors really drive the price of this precious metal? Let’s take a closer look at the many factors driving the price of gold in today’s markets.
Central Bank Reserves
Many of the world’s nations have reserves that are composed primarily of gold and their central banks hold paper currencies and gold in reserve. When these central banks begin buying more gold than they are selling, the price of gold rises.
Value of the U.S. Dollar
The price of gold is inversely related to the value of the U.S. dollar. When the dollar is strong, the price of gold decreases, and when the dollar is weak, the price of gold increases. The reason for this is that people invest and trade in dollars when the dollar is strong, and when the dollar is weak, they prefer to invest in gold either through gold funds or physical gold.
Jewellery and Industrial Demand
The price of gold is affected by the basic theory of supply and demand. When the demand for consumer goods such as electronics, medical devices and jewellery increase, so will the cost of gold. With India, China and the United States being the largest consumers of gold for jewellery in terms of volume, the security of a gold investment is even more evident.
When an economy goes into a recession, people turn to gold investments due to its lasting value. Gold is often used as a hedge against currency devaluation, inflation or deflation and its price will increase when the expected or actual returns on bonds, equities and real estate fall.
The top gold producing countries in the world are China, South Africa, the United States, Australia, the Russian Federation and Peru. Gold production affects the price of gold and with gold mine production increasing by about three percent annually, gold prices should remain stable for quite some time. Another factor that arises from the mining of gold is that all of the “easy gold” is already mined and now gold mining companies must take extra precautions when mining the precious metal. These extra steps cost more money and this increase in the cost of gold mine production results in rising gold prices.
If the thought of a dependable investment that offers stability and an excellent return on your investment appeals to you, contact Physical Gold today and let one of our investment professionals assist you and answer any questions you might have about investing in physical gold.