What Drives Gold Prices?
Gold is a unique asset that plays an important role in diversifying an investment portfolio. It is a mainstream asset that provides competitive and risk-adjusted returns when compared with other types of assets. What’s more, it is able to mitigate potential losses when the market is under stress as well as serve as a hedge against inflation.
In 2019, financial experts are expecting gold to shine and enter into a bull market which raises the demand for it. As an investor, it’s important for you to understand the question, what drives gold prices? so you can make informed decisions about this hard asset.
Factors that Affect Gold Prices
At the close of January, the price of gold in Australia the spot price for gold moved above $1850 per ounce for the first time since June 30th, 2016. Now in June 2019 it is $1920 per ounce. Analysts are suggesting that in the succeeding months, prices will hold steady and may even go higher. The rise and fall of gold prices are driven by several global economic factors. This includes:
Supply and Demand
Gold, much like other commodities, is influenced by supply and demand. High demand for gold paired with a limited supply result in higher prices.
Many analysts believe that there is currently not enough gold being produced to satisfy for today’s demand. Apart from low mining production, the leverage in the paper gold market is also creating an imbalance in supply and demand for gold.
The Value of the US Dollar
The price of gold is valued against the US dollar which means they have an inverse relationship. When one goes up, then the other tends to go down. When the dollar is weak, people tend to invest more in gold.
Central Bank Reserves
While fiat currencies are not backed by gold anymore, central banks and governments still hold gold reserves. When these institutions begin to buy and stockpile gold, pressure on the demand side increases resulting in rising prices.
It’s been mentioned time and time again that gold is a hedge for inflation because it holds up against economic stress. When inflation gets out of hand, investors typically lose faith in fiat currency and turn to safe-haven assets like gold, so they can safeguard their wealth.
Industrial and Commercial Use
Gold has many commercial and industrial applications including jewellery, technology, and medicine. The demand that the production of these items creates pushes the price of gold upwards.
Invest in Gold Today
Now that you know what drives gold prices, you should now be more confident in investing in this precious metal.
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