Investing in gold – the factors that affect the price of gold

Understanding the factors that affect the price of gold is very important before investing in a precious metal. It is equally important to know the major differences between gold supply and demand compared to other investments such as commodities, stocks and bonds.

Another factor to keep in mind; Gold is not the only precious metal to consider when making this type of investment. Silver, platinum and palladium are also in high demand as investment funds, offering bases similar to gold, but each has its own unique characteristics as an investment.

Factors affecting the price of ingots

The value in a gold coin or gold bars is determined by the content of precious metals. Although gold is a pleasure to look at in almost any form when it is sought for investment purposes, its aesthetic appeal is not usually considered. Because of this, the price of gold bullion is directly related to the market price of gold and will fluctuate as the market moves, as do stocks, bonds and commodities.

How to measure the price of gold

When specifying the price of gold, most business reports show the price per troy ounce in US dollars. If you’re watching the market outside the U.S., make sure you convert that price into your native currency and know that one troy ounce is equivalent to 31.1 grams.

Also, note that the price quoted in the market is always for pure gold. Most jewelry is much smaller than pure (usually between 40-75%), but ingots and coins tend to have a fairly high purity (above 90%).

By understanding the mechanics behind the price of a physical sample of gold, you can begin to consider the market forces that cause wide daily price fluctuations. They are listed in order of their effect on the daily price of gold.

1. Macroeconomic data

Undoubtedly, the most influential indicator on the price of gold is the daily economic information coming from world markets. Historically, gold has always been a type of investment “safe haven”. Like real estate and cash, this is where you need to put your money if somewhere else doesn’t look good. When money is withdrawn from the stock market, it usually flows towards such types of investments, but in 2008, when the stock market and real estate market experienced a simultaneous collapse, gold seemed the only safe game and in turn began a sharp rise in price.

2. Inflationary pressure

Inflation is the theory that the value of money will always go down over time. While the average price of a house is not $ 40,000 as in 1975, the amount of gold bars needed to buy the same house is fairly constant: $ 40,000 gold in 1975 today would cost a little over $ 310,000.

This means that no matter what kind of gold market there is, in the long run it’s always better than keeping cash without earning any interest on it. Although gold does not pay interest, its value usually tracks inflation or better.

3. Supply and demand for gold

Demand and supply – the main engine of market pricing, which underlies most goods. Although the price of gold is much more complex than this basic formula, these factors do play a role.

The supply of gold largely depends on its value, because the cost of its extraction has become so high. It used to be easy enough to search for and mine gold, with many stories of gold rush getting into the mother’s womb. Nowadays, mining gold in large quantities is much more difficult and requires expensive equipment and technology. Also, because gold is not actually “depleted” and not consumed the way other commodities do, there is always a large supply of gold regardless of supply. Thus, unlike most other commodities, gold supplies are likely to be more responsive to its value than to have a direct impact on it.

Demand also matches the level. As the price of gold falls, its demand for jewelry increases (because jewelry is an optional item of expenditure), but investment demand for gold will usually fall as prices fall. Of course, the opposite is true, of course, when prices rise: the demand for gold jewelry falls, and investment – increases.

The future of gold prices

Look at the economy and inflation as the most likely indicators of the value of gold in the future. Another major recession or a sudden rise in inflation could cause gold to rise again. Similarly, if the world economy improves and inflation remains under control, gold prices are likely to remain quite stagnant and may even fall somewhat further.