Key Factors Affect the Price of Gold

 Key Factors Affect the Price of Gold 

Though gold cannot be classified as a volatile asset, its price still changes from time to time. Most times, the price of the precious metal is a reflection of economic situations, but there are key factors that affect its price. The major ones include:

Central Bank Reserves – 

Some countries have reserves in gold. Though the United States has abandoned the gold standard, most central banks build up reserves in gold. Increased demand for gold by central banks can result in an increase in its price.

Value of the U.S. Dollar – 

Gold is dollar-denominated, which means the value of the dollar will always have an effect on the price of the precious metal. A stronger dollar means the price of gold can be lower or properly controlled. A weaker dollar, on the other hand, will result in an increase in the price of gold.

Jewellery and Industrial Demand – 

Demand for gold from jewellery makers and other companies that use gold in their products can affect the price of the metal. A significant increase in demand can result in an increase in price.

Wealth Protection – 

Gold is mostly used as a hedge against inflation. During times of economic uncertainty, many wealthy people turn to gold to protect their wealth. The higher the demand for gold for wealth protection, the higher the price can become.

Investment Demand – 

Exchange Traded Funds and other investment vehicles also purchase gold for several reasons. The higher the demand from this sector, the higher the price of the precious metal.

Gold Production – 

Though the supply of gold never drops, an increase in production can also affect the price of the precious metal significantly. The more gold is mined, the better it will be for the price to remain stable. Disruption in gold mining can result in an increase in price.