Factors that effect price of Gold

What are factors that affect gold price?

There are several factors which affect the value of gold, spike upward or downward, a number of them are listed below.

1. World Crisis and Geopolitical Uncertainty.

Gold has observed as a source of protection during a government or economic turmoil, and therefore the worth of gold is plagued by world events (i.e., economic or geopolitical tumult).The prices of gold may rise if residents lose confidence in the monetary markets and their governments. For instance, the value of gold jagged low after the Iran’s atomic contend with U.S, before the deal, there were uncertainty and great concern of war, attributable to which gold within the marked was scarce. This exaggerated the value of gold, however right after the deal price has gradually slashed attributable to stability within the region.

Similarly, Gold prices spiked upwards around seventy bucks an Ounce (oz) attributable to terrorist attack attacks on World Trade Center (WTC).

2. Interest Rates.

The rate of interest encompasses a direction relationship with the value of gold. it's observed that with the rise in interest rate, the gold worth decreases, as a result of smart opportunities for investment of funds in alternative businesses, in such circumstances individuals sell their gold to come up with cash for the alternative business. Similarly, gold worth will increase after the rise in the interest rate. So, a higher rate of interest is equal to decline in the gold worth, whereas a lower interest rate is equal to increase in gold worth.

3. Inflation

Rapid rise in the price of daily using items (e.g., commodities etc.) and a declination in the buying power of currency or currency devolution over months or years is called inflation. Currency prices may be increasing or decreasing, but gold values might be more stable in the long term. Investors feel confident while buying at a declination of paper currency.

4. Practical Applications.

Gold has many practical applications in many industries. Due to its best-conducting properties, it is used in electronics, computers. Due to low mass, it is also used in Dentistry. Another application is Medicines i.e. it is used heart stints devices. Whenever any industry acquires it heavily then its price also increases because of scarcity in the market.

5. Jewelry.

For centuries, in most civilization the gold has been recognized as precious treasure and symbol of beauty. There is a huge demand for gold in the populated countries of the world, which is used in jewelry, gift. Around 60% gold demand is from jewelry. Still is used as a display of wealth. India had imported around 1000 tons of gold in the year 2012. In some countries, it is used as a type of currency/coin. China is the country where Gold demand has increased in the recent years.

6. Production of Gold.

Production cost may affect the cost of gold. E.g., when the production cost rises, gold miners sell out their stored wealth to preserve it for the future, while when cost lower, gold miners and investors buy gold. The production of gold is very slow as compared to world gold reserve, or raw gold present in the rocks.

7. Demand and Supply.

It is a famous economic factor is important like any other industrial element or thing produced by any industry. There is a need for equilibrium, which determines its price, and that is the middle point of them, i.e. the quantity of gold being produced and the price at which it is sold.

8. Government Reserves of Wealth.

Gold is a tangible assist and a display of wealth of any country, countries having more gold are wealthier. Central banks of each country, like the U.S. Federal Reserve, Germany, Italy, England, Japan, Greece, India, France, buying gold in regular intervals. Most of the European countries having their most wealth in the form of Gold. Whenever, central banks buys more Gold, this flood money into the market, which results in lower interest rate, and investors start buying gold. Same is true in opposite direction.

9. Strength of U.S. Dollar.

Gold is trading in dollars around the world, which is a dominant currency for every business and International trade, there is an inverse relationship between USD and price of gold e.g. when the dollar index become stronger the price of gold will become weaken. This situation is observed, from 01/09/2014 to 10/09/2014, during those ten days the index of U.S. dollar rose by around two points, this decreased the price of gold in the International market.

10. Central Reserve Bank Decisions.

Almost all countries of the globe having a central bank. However, the United States central bank (the FRS Bank) had a great impact on the globe economy. Any uncertainty, lead to rising of the value of gold. Usually, the traders wait for scheduled meeting of FRS Bank, on the release of meeting minutes they attempt to trade. In such uncertain situations, individuals prefer tangible assists rather than paper currency to refrain from any deficit and potential loss.

11. Quantitative Easing

Securities are financial assets, they care generally classified into debt (e.g., debentures, bonds, and banknotes), equities (e.g., common stocks), and Derivatives (e.g., forwards, futures, options and swaps).

Quantitative easing (QE) is the purchasing of securities by central banks i.e. Central Reserve Bank, for the purpose to flood money into the market (i.e. Financial Institutions). This decreases the interest rate which pushes the public to buy gold. Flooding more and more money may result in inflation, which is another reason for buying gold. So, it refers to the strategy of the central bank of a country to buy mentioned securities to increase the supply of money in the financial market. Similarly, selling securities back to the market, result in low money in the market, this increase the interest rate, and the cause of generating opportunities for investing money in other businesses, in such circumstances investors selling their gold in order to collect money for investing in other businesses.