What Factors Influence The Price Of Gold?

Price Of Gold

Gold is one of those precious metals that are popular among investors regardless of their risk factors. It is internationally recognized and highly valued as it is only circulated in limited supplies. Both collectors and investors may choose to purchase certified gold coins, gold bullion, or even gold bars. Each form has its distinct advantages and may vary in price due to multiple factors. No matter how you choose to invest in this precious metal, the gold price on the open market will directly affect the value of your specific commodity. This is called the spot price of gold, and it is what most are referencing when referring to the price of gold. 

Investors tend to watch the spot price when buying or selling this precious commodity to ensure a profitable transaction. While many are familiar with the spot price of gold and may even use a gold price chart regularly, few can enumerate the factors that directly influence the price of gold. Here are the fundamental factors that influence this firmly established commodity. 

Market Equilibrium

Market equilibrium is just a fancy way to refer to supply and demand. Simple economic drivers directly influence the price of gold. When demand is high, and supply is low, gold prices climb in the marketplace. For instance, 2016 saw a 16 percent surge in demand for investment gold in the first half of the year, but supply only increased by 1 percent. This sent gold prices through the roof.

Economic Drivers

Economic drivers such as GDP growth and unemployment rates can also directly influence the price of gold. Rising unemployment rates and weak GDP growth tend to push gold prices higher. However, stronger economic growth and low unemployment rates can signal a move from the Feds to tighten fiscal policies, which push gold prices lower. 

Inflationary Increases

The biggest sign of economic growth and expansion is inflation. The Federal Reserve tends to expand the monetary supply during times of inflation, which dilutes the value of every dollar circulated. This makes gold and other stored value assets more expensive. Rising inflation drives up the price of gold, and a lack of inflation deflates its value. Interest rates and inflation create consistently changing gold prices. 

Inverse values

When the United States dollar falls in value, other commodities and currencies around the world tend to increase. This includes the price of gold. On the contrary, a strong U.S. dollar value signals a growing economy that deflates the price of gold. Gold is dollar-denominated, so the commodity price of this precious metal on the open market is inversely related to the strength of the U.S. dollar. 

Gold Price Charts

Many investors choose to use live gold price charts to help them make profitable investment decisions when it comes to the price of precious metal commodities. The best live price charts are updated in real time every few seconds while allowing users to select custom date ranges to spot pricing trends in the marketplace. There are multiple factors that influence the spot price of gold, both directly and indirectly. Utilizing a live price chart can help you understand the fundamental relationship between the price of gold and various socioeconomic factors before making investment decisions to buy or sell this precious commodity. 

Read Also: The Impact of the US Dollar on Gold