Causes For Fluctuating Global Gold Prices
Gold has been considered valuable asset for us as long as human civilization has existed. It is a timeless currency and considered the ultimate safe-haven asset. The price of the metal soar in times of economic difficulty or Geopolitical instability, when demand increases as Investors lose confidence in banks and higher risk investments. On the other hand, price often decrease in more stable times, when Investors' confidence and appetite for risk is much higher. Gold is used as a standard of value for currencies all over the world. The price of gold gets stated as a currency value,
often in U.S. dollars and the price of Gold can fluctuate with market conditions.
The Global Economic crash of 2008 is an excellent example of this. In the three years following Lehman Brothers. bankruptcy in September 2008, the price of Gold increased by 157% as the
impact of bank's collapse was felt across the world. Looking at the historical movements of Gold price, taking into account the state of Global geopolitical and economic climate, allows to make predictions about which direction the precious metal might take.
Below are ten main influences on Gold price fluctuations that any investor with an interest in Gold
trading should understand -
1) GLOBAL CRISIS - World events often have an impact on the price of Gold because Gold is
viewed as a source of safety amid economic and geopolitical tumult. Gold prices tend to rise
when people lack confidence in Government or financial markets, It often gets called as a
Crisis Commodity. Political crisis equates to more interest in Gold as a safe haven.
2) INFLATION - A common reason for holding Gold as a hedge against inflation and currency
devaluation. Currency value fluctuate, but Gold values, in term of what an ounce of Gold can
buy, might stay more stable in long term - because Gold holds value outside of politics- valued
the world over - an attractive, low risk solid investment in the midst of floundering currencies.
Investors may feel encouraged to buy Gold when they believe the value of paper money will
decline.
3) VALUE OF U.S DOLLAR - The price of Gold and the strength of Dollar have a clear inverse
relationship, when the Dollar is strong, Gold is weaker and vice-versa. For example, index
of US Dollar rose almost 2 points between Sept. 1 and 10, 2014 which softened the market
for those selling gold. On the other hand, buying gold may see a strong Dollar as a buying
opportunity that could provide some price support.
4) INTEREST RATES - Gold prices often reflects increases ans decreases in interest rates. As
interest rates increases gold prices may soften as people sell gold to free up funds for other
investment opportunities. As interest rate decreases, Gold prices may increase again because
there is a lower opportunity cost to holding gold as compared to other investments. Low interest
rates equate with greater attraction to Gold.
5) BANK INSTABILITY - Bank failures and irregular economic policies make buying gold seem
like a safe haven investment. People rush for Gold when the paper money system experiences
uncertainty. Investors prefer physical and tangible security of holding gold when Central banks
are going through deficits as a protection of wealth. In turn, increased demand drives up the value
of gold even more.
6) QUANTITATIVE EASING - It refers to Central Bank's strategy of buying securities to increase
money supply. A larger money supply pushes interest rates down, which encourages Investors
to buy gold because of lower opportunity cost. When over done, this practice can trigger inflation,
another reason of rising price of Gold.
7) GOVERNMENT RESERVES - Central banks hold both Gold and paper currency in reserve. A
bulk of their Reserves are used for buying more gold. When these banks start buying gold in
greater quantities than they sell, it drives gold prices up. This is because supply of currency
increases and Gold become scarce.
8) JEWELRY INDUSTRY - Over half of gold demand is from Jewelry industry and India, China
and USA are countries with biggest demands. In some parts of India, Gold is regarded as a
display of wealth, an important gift and a Hedge against bad times. This demand drives the price
of gold up. Gold, both the color and the precious metal, is a symbol of opulence in China. Besides,
12% of gold demand is from its industrial applications. Manufacturers use gold in sorts of
electronic devices from computers to CPS systems and medical devices like heart stents.
9) GOLD PRODUCTION - Even though new production seem modest compared to total supply,
production costs can influence the cost of all gold in the world. When production costs rise,
miners sell gold for more money to safeguard their profits, and those higher costs also get
reflected when it comes time to sell coins if they were minted from Gold that was originally
mined in thee recent past or thousands of years ago.
10) SUPPLY VS.DEMAND - It has been claimed that activity of mining Gold and coveting Gold
is in existence since at least for 5000 years and this metal is likely to remain precious even if
the price fluctuates often. The actual price of Gold remains fairly stable in the long run and
the price could simply reflect temporarily uncertainty or simple currency fluctuations.
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often in U.S. dollars and the price of Gold can fluctuate with market conditions.
The Global Economic crash of 2008 is an excellent example of this. In the three years following Lehman Brothers. bankruptcy in September 2008, the price of Gold increased by 157% as the
impact of bank's collapse was felt across the world. Looking at the historical movements of Gold price, taking into account the state of Global geopolitical and economic climate, allows to make predictions about which direction the precious metal might take.
Below are ten main influences on Gold price fluctuations that any investor with an interest in Gold
trading should understand -
1) GLOBAL CRISIS - World events often have an impact on the price of Gold because Gold is
viewed as a source of safety amid economic and geopolitical tumult. Gold prices tend to rise
when people lack confidence in Government or financial markets, It often gets called as a
Crisis Commodity. Political crisis equates to more interest in Gold as a safe haven.
2) INFLATION - A common reason for holding Gold as a hedge against inflation and currency
devaluation. Currency value fluctuate, but Gold values, in term of what an ounce of Gold can
buy, might stay more stable in long term - because Gold holds value outside of politics- valued
the world over - an attractive, low risk solid investment in the midst of floundering currencies.
Investors may feel encouraged to buy Gold when they believe the value of paper money will
decline.
3) VALUE OF U.S DOLLAR - The price of Gold and the strength of Dollar have a clear inverse
relationship, when the Dollar is strong, Gold is weaker and vice-versa. For example, index
of US Dollar rose almost 2 points between Sept. 1 and 10, 2014 which softened the market
for those selling gold. On the other hand, buying gold may see a strong Dollar as a buying
opportunity that could provide some price support.
4) INTEREST RATES - Gold prices often reflects increases ans decreases in interest rates. As
interest rates increases gold prices may soften as people sell gold to free up funds for other
investment opportunities. As interest rate decreases, Gold prices may increase again because
there is a lower opportunity cost to holding gold as compared to other investments. Low interest
rates equate with greater attraction to Gold.
5) BANK INSTABILITY - Bank failures and irregular economic policies make buying gold seem
like a safe haven investment. People rush for Gold when the paper money system experiences
uncertainty. Investors prefer physical and tangible security of holding gold when Central banks
are going through deficits as a protection of wealth. In turn, increased demand drives up the value
of gold even more.
6) QUANTITATIVE EASING - It refers to Central Bank's strategy of buying securities to increase
money supply. A larger money supply pushes interest rates down, which encourages Investors
to buy gold because of lower opportunity cost. When over done, this practice can trigger inflation,
another reason of rising price of Gold.
7) GOVERNMENT RESERVES - Central banks hold both Gold and paper currency in reserve. A
bulk of their Reserves are used for buying more gold. When these banks start buying gold in
greater quantities than they sell, it drives gold prices up. This is because supply of currency
increases and Gold become scarce.
8) JEWELRY INDUSTRY - Over half of gold demand is from Jewelry industry and India, China
and USA are countries with biggest demands. In some parts of India, Gold is regarded as a
display of wealth, an important gift and a Hedge against bad times. This demand drives the price
of gold up. Gold, both the color and the precious metal, is a symbol of opulence in China. Besides,
12% of gold demand is from its industrial applications. Manufacturers use gold in sorts of
electronic devices from computers to CPS systems and medical devices like heart stents.
9) GOLD PRODUCTION - Even though new production seem modest compared to total supply,
production costs can influence the cost of all gold in the world. When production costs rise,
miners sell gold for more money to safeguard their profits, and those higher costs also get
reflected when it comes time to sell coins if they were minted from Gold that was originally
mined in thee recent past or thousands of years ago.
10) SUPPLY VS.DEMAND - It has been claimed that activity of mining Gold and coveting Gold
is in existence since at least for 5000 years and this metal is likely to remain precious even if
the price fluctuates often. The actual price of Gold remains fairly stable in the long run and
the price could simply reflect temporarily uncertainty or simple currency fluctuations.
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