Major Factors That Influence Gold Prices

| November 11, 2016

Gold is a strong part of our economy, and we need to know more about it. The price of gold fluctuates, and many factors have to intervene for this to happen every day. We are going to talk a little bit about these factors so you can become a better investor down the road.

Factors That Influence Gold Prices

Supply and Demand

Gold is influenced, as any commodity, by the forces of supply and demand. An increased demand for gold will increase its price, and the same is true of the contrary situation happens. If the dollar is strong, investors will prefer to buy dollars instead of gold. This will make the price of gold to fall down the road, as investors prefer to buy dollars instead of gold. So the dollar has a strong influence on the price of the gold, as you can see here.

Mining firms and central banks also play an important role in the price of gold. Central banks, for example, sell and buy gold depending on the economic conditions. The transactions that these institutions carry on with gold are important, as they can truly influence the price of this precious metal down the road. During an economic crisis, investors tend to put their money in gold, as this commodity tends to perform well in the middle of any economic downturn. You must also take other factors into consideration such as government policies, national emergency situations, online trading, and speculation. A global crisis will also influence the price of gold down the road.

If people lack confidence in financial markets or governments, the price of gold will rise. When Russia moved into Ukraine, investors started to buy gold like crazy as they wanted some kind of protection against that political turmoil that was happening in Europe at that moment. Inflation is another important factor that determines the price of gold down the road. Investors tend to use gold as a hedge against the famous inflation. The price of gold, in terms of the goods and services it can buy, remains almost constant at all times.

Interest Rates

Interest rates truly affect the price of gold. For instance, banks pay interest on savings account, and the US government pay interest on Treasure bonds. The price of gold truly reflects the interest rates that prevail on these markets as well. Gold is truly a magnet for those looking for a hedge against low-interest rates. Quantitative easing refers a strategy used by central banks. These banks will buy tons of securities so that they can increase the money supply. This will push interest rates down, increasing the price of gold over time. If this action is overdone, this can cause inflation, which raises the price of gold as well.

You can also buy gold when the price of this commodity is low, as it happens in the case of a slowdown in interest rates. Governments around the world have gold. They love buying gold so they can have a hedge against economic uncertainty. The price of gold is going up if these institutions start to buy tons of it. When the supply of a particular currency increases, gold will become more scarce, which drives its price up as well. The demand for gold jewelry is another important factor that determines the current price of gold around the world.

The countries with the most demand for gold are China, United States, and India. Gold is also used as a display of wealth in India as well as a hedge against a truly bad time. This huge demand for gold drives the price of this commodity up. Gold is also an important wealth symbol in China, and the recent economic boom in this country tends to push the price of this commodity higher and higher. The industry also uses gold heavily in all kinds of electronic devices and applications including GPS systems.

Gold Production

The production of gold can also be an important factor in the price of gold. Too much production of gold can lower the price of gold down the road, as the supply of this commodity will increase. The supply in the amount of recycled gold is also an important indicator of the future price of gold. When the price of gold is rising or the economy is slowing down, the production of recycled gold tends to increase. Central banks around the world and many other institutions hold 25% of the total gold supply in the world. They cannot sell more than five hundred tons per year, as per an agreement.

There is also an indirect pricing of the important production costs. The price moments of any other commodity will affect the price of gold as well. Government deficits also play an important role in the price of gold over time. Remember that gold will move with global growth and commodity prices down the road. The price of gold is also correlated to global inflation and money supply. The FED is, perhaps, the most important factor when it comes to the price of gold out there. The U.S. economic data is another important driver of gold prices.

Economic data such as GDP growth, manufacturing data, wage data, and job reports will influence the price of gold as well. A strong U.S. economy will push down gold prices. This happens when the economy has enough jobs and the GDP is also expanding at a 2% rate or even higher. The FED could also make an important move so they tighten the U.S. monetary policy, which will have a strong impact on the price of gold down the road. The smallest influencers of gold tend to be ETFs or exchange-traded funds. Though ETFs are not meant to be market movements, they do a very good job at it as well.

As you can see, gold is influenced by many things. You just have to take a look at the price of the dollar or the future FED policies so you can get more data about what the future price of gold could be. Interest rates also play an important part in the price of gold, and the movements of the global economy are also important.

Article by Daffa Zaky

About The Author

With over 7 years’ experience in the heart of the investment industry, Daffa Zaky has become one of the most respected commentators in the financial world. Daffa remains a keen forex, stocks and binary options trader and is a regular featured analyst for a number of online news portals and was responsible for He is also a contributor to


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Category: Commodities

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