Gold Prices Explained
Gold prices faltered slightly in the market as investors digested the possible timing and extent of interest rate cuts by the Fed. Additionally, the U.S. GDP ( gross domestic product ) grew by 3.3% which further pushed gold prices down.
Why are gold prices fluctuating?
Gold is the most popular investment and that reason alone makes its price fluctuate in the market. However, it is important to note that investment is not the only driving factor behind gold prices in the market.
1. Currency Exchange Rates
The U.S. dollar is the standard price of gold so when its value changes, so do the gold price. Conversely, if the dollar performs low in the market, investors will flock to invest and diversify their portfolios which steers up the gold price.
2. Investment Demand
The gold investment comes in many forms. One popular example is ETF ( exchange-traded funds ). It functions like a trust and is traded actively on an exchange. Private entities and mining companies represent the ETF market and it is growing in the United States. As a result, its presence demands more gold investment and causes gold price movement too.
3. Jewelry Demand
According to the World Gold Council, 44% of gold demand comes from the jewelry industry. 75% comes from the technology and manufacturing industries. Additionally, it is one of the crucial elements in making medical devices such as stents and precision electronics like GPS.
Large consumers of gold for jewelry like the United States, China, and India also take hold of its demand and prices.
4. Economic Uncertainty
Investors are always on the lookout for economic recession. To back up uncertainty, investors employ gold as a hedge against inflation for its value remains even advantageous regardless of economic conditions. Ultimately, the demand for gold from investors also affects its market price.
5. Central Bank Reserves
Central banks are the big buyers in the gold market. 60% of the current gold reserves belong to the United States, Germany, Italy, France, and Switzerland. Thus, the Central Banks’ capacity to buy and sell gold highly affects gold price movement.
Which variables impact the price of gold?
- Currency Exchange Rates
- Investment Demand
- Jewelry Demand
- Economic Uncertainty
- Central Bank Reserves
- Geopolitical Risks
- Market Speculation
Where does gold come from?
Gold is a naturally occurring element found in the Earth’s crust. Scientists believe that it is formed by supernovae and neutron star collision before the solar system formation.
Gold trading started in ancient Egypt around 2600 BC. Ancient Turkish people pioneered the first minted gold in the 7th century BC. Furthermore, gold continued to be the most extensively traded currency in the Middle Ages and the Renaissance period.
Additionally, the first official gold exchange started in Amsterdam, Netherlands in the 17th century paving the way for trading shares in the Dutch East India Company and around Europe.
Today, the top gold trading hubs are the London Bullion Market, the New York Mercantile Exchange, and the Shanghai Gold Exchange. The United States, China, Australia, Russia, and Canada hold the major gold producers in the world.
What is the future price of gold?
Gold has always been a valuable asset as its value is always desired and demanded in the market. Along with its valuable portfolio are the considerable potential risks and gains.
The years 2019 and 2020 proved the strengths and weaknesses of gold in the market. The advent of digital gold like Bitcoin ate a part of the traditional gold market. However, COVID-19 and inflation backed its reliability as a safe investment. Thus, making investors seek the metal space market.
Gold futures price will always come along with the U.S. economic performance ( as it is generally a dollar-denominated asset ), the metal source, and the investor’s expansion of investment portfolio.
With that being said, there’s no better time to invest in gold than now as its price is expected to balloon to $8,732 in 2030.