What Affects the Price of Gold

Gold has been known to be the most desirable metal on earth. Although it is the most precious metal, there are some issues that gold is facing like its demand and supply imbalance. Gold has been used as an investment and a useful product in electronics, but there are also some factors that affect the price of gold.

One of the biggest factors that affect gold’s price is its amount of supply in the central banks around the world. In 2003 the stock of gold was about 33,000 metric tons, accounting for nearly 25% of all the gold mined in the world. In the same year, 3,200  metric tons of gold were supplied to a marketplace of mining and scrap. That means that the stock of gold in the central bank can overrun the market if it is sold, there is enough stock of gold to satisfy its world demand for almost a decade without worrying another ounce of gold being mined.

although gold is very useful, without a gold standard it has only a limited use in the central bank for it does not earn any investment interest. Some central banks in the world had already eliminated their gold supply to minimize its demand.

Except for its supply and demand imbalance many factors also affect the price of gold.  Many investors worry due to the fact that gold was mired in a multi-year downturn that had to lose about $850 an ounce from its all-time high price. Throughout, gold miners were more likely to be writing off assets and cutting capital amounts than developing and expanding their mines.    Here are some factors that also affect the gold price.

Monetary arrangements

Monetary policy has the biggest effect on gold’s price.  That is controlled by the federal reserve. Opportunity-cost is one of the factors of interest rates that affect the gold’s price.  “Opportunity cost” is an idea of giving up a guaranteed gain in one investment and to gain potentially on the other investment. Federal Reserve can also move the gold market, the federal open market committee (FOMC) discusses the state of the U.S economy and monetary policy every six weeks. If the viewpoint of the FOMC implies the rate of gold can rise in the future. However, if the FOMC implies that the rate must be held steady, gold price tends to rise.

Inflation

Due to the rising price of goods and services, inflation also affects gold’s price. Higher inflation tends to pressure gold’s price higher, but lack of inflation has less of an impact on gold prices. The growing and expanding of the economy of a country can be observed in the level of inflation. The inflation rate can be high if the federal reserve expands the supply of money. Thus, expanding the supply of money decreases every remaining monetary note, making gold more expensive to buy. Resulting in a quantitative easing program of money supply in the gold price.

Uncertainty

Political uncertainty or instability is another factor that can move gold’s price. Many factors can contribute to a global growth of uncertainty and also aids in rising gold’s price. The one thing that stockholders have to keep in mind is that uncertainty is not a perceptible statistic like many other factors. It is a psychological factor that investors experience, and it can also differ from one event to the other.

Economic Data

US economic data such as job reports, broader-based data, manufacturing data, wage data also affect gold’s price and influences the federal reserve’s monetary policy decision. A stronger economy has a low unemployment, and higher rates of jobs.  Expanding of manufacturers has a tendency to push gold’s price lower. Strong economic growth can lead the Fed to make a move to a narrow monetary policy. However, rising unemployment, weaker job rates, and a lower manufacturing data can increase gold’s price.

Supply and Demand

The supply and demand of gold like any other goods can simply influence the physical gold price as well. Increased demands and a low supply have the power to pull gold’s price higher.  An oversupply and weak demands for gold can lead to a lower price. Gold supply only increases by 1% during the first 6 months of 2016, which shows the difference in supply growth since 2008. Rising demands and lack of supply on gold can push its price higher than ever.

There are so many factors that can affect the gold’s price.  A weak economic growth is one of the bases that can push gold’s price higher. However, a stronger economic growth can restrain the price of gold or push it downward.

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