Investment

What are the factors that influence gold prices?

A variety of factors influence the price of gold in the global economy. Read onto know more about these factors.

Gold is a popular investment option that has traditionally yielded good returns. However, gold prices have a tendency to fluctuate. As a result, investors in gold futures and physical gold need to keep a close watch on the prices.

A number of factors contribute to the changes in gold prices. Mentioned below area few of them.

When the economic situation is weak with most investments providing low returns,investors are likely to put their money in gold.

Demand and supply

Gold prices are essentially determined by the demand and supply of this precious metal. The price of gold is on the rise continually due to its high demand and finite supply. Apart from an investment instrument, it is also used widely for industrial purposes due to its high resistance to corrosion and thermal conductivity. In light of the supply, persistent increase in demand causes the price to go up and vice versa.

Dollar strength

Another factor that influences the gold prices the world over is the strength of the US dollar. If the dollar weakens, investors around the world begin to sell the currency and buy gold for security. This causes a jump in demand and consequently, a rise in gold prices. On the other hand, when the US dollar strengthens, it causes a fall in demand for gold.

Central banks and mining companies

Central banks and mining companies usually hold large reserves of gold. They buy and sell this precious metal according to the movements of their currency and the overall economic scenario. Drastic changes in the price of gold are mainly due to frequent transactions by these bodies.

Economy

One of the most crucial factors influencing the gold prices is the state of the global economy. When the economic situation is weak with most investments providing low returns, investors are likely to put their money in gold, as it is known to perform well during crisis situations.

While these are some of the major factors that affect the price of gold, there are several others like trading and speculation, national emergency situations, increase in per capita income, government policies, etc. that play an important role in the process.

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