Six Major Drivers of the Price of Gold

These days, gold is sought after for investment and jewelry creation purposes. Also, it is used in making some medical and electronic devices. Gold is making record highs and there are factors that drive its prices.

Read on to understand these factors:

  1. S Dollar Value

In general, gold prices are inversely related to the United States dollar’s value. Thus, a stronger U.S. dollar keeps gold prices lower and more controlled. If the dollar weakens, the price of gold is driven high. This has to do with the tendency of people to invest and trade in dollars when the dollar is strong. But, when economic uncertainties hit and the dollar is weak, people invest in gold through coins or gold funds.

Central Bank Reserves

Aside from paper currencies, central banks hold gold in reserve. As they diversify their monetary reserves, gold prices rise. A lot of nations in the world have reserves that include gold.

Global Demand for Jewelry and Other Gold Products

As the demand for jewelry increases, the price of gold rises. The United States is one of the biggest consumers of gold for jewelry when it comes to volume.  Also, gold is increasingly becoming highly in demand as it is used for making medical devices like stents and precision electronics such as GPS units.

Gold Production

The United States, China, Australian, South Africa, Peru, and the Russian Federation are the major players in the global gold mining. The worldwide production of gold impacts the metal’s price because it tends to cost more to get less gold. This can be caused by the fact that gold is more challenging to access, raising more issues to miners and the environment than before.

Electronic-Traded Fund Activity

While electronic-traded funds (ETFs) are not designed to move the market, they are still worth mentioning. Investors can buy these basket funds for increased liquidity and the possible ability to spread their risks over a huge number of assets without spending a lot of money. Gold ETFs buy gold or sell physical bullion based on investor demands. As the demand for gold changes, the price will be affected by the ETFs’ buying and selling activity.

Investor Desire

During economic uncertainties, more investors will invest in gold due to its increasing value. Usually, gold is regarded as a safe haven for investors during these times. As the actual returns on real estate, equities, and bonds decline, gold investing interest increases, driving up its price. Investors may use gold as a hedge against inflation, currency devaluation, and deflation.