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Investing in Gold – Factors That Influence the Price of Gold

Understanding the factors that affect the price of gold is very important before making an investment in the precious metal. It is equally important to be aware of the key differences in the supply and demand for gold compared to other investments such as commodities, stocks and bonds.

Another factor to consider; Gold is not the only precious metal to consider when making this type of investment. Silver, Platinum and Palladium are also highly sought after as investment vehicles, offering similar fundamentals to gold, but each has its own unique characteristics as an investment.

Factors Affecting the Price of Gold

The value in a gold coin or gold bar is found in its precious metal content. While gold is beautiful in almost any form, its aesthetic appeal is often not considered when sought for investment purposes. Therefore, the value of gold coins is directly related to the market price for gold, and will change as the market moves, like stocks, bonds and commodities.

How to Measure the Price of Gold

When citing gold prices, most business reports will show the price per troy ounce in US dollars. If you are following the market from outside the US, be sure to convert this price to your home currency, and note that one troy ounce is equal to approximately 31.1 grams.

Also note that the price quoted in the market is always for pure gold. Most gold is much less pure (usually between 40-75%), roses and gold are usually of much higher purity (over 90%).

By understanding the mechanics behind the price of a physical sample of gold, you can begin to look at the market forces that cause wide daily price swings. They are listed according to their influence on the daily price of gold.

1. Macroeconomic Data

By far the most influential metric on the price of gold is the daily economic information coming out of the world markets. Gold has historically been a “safe haven” type of investment. Like real estate and money, it’s a place to put your money if things aren’t looking good elsewhere. When money is taken out of the stock market, it usually flows into these types of investments, but in 2008 when the stock market and housing market crashed simultaneously, gold seemed like the only safe bet and, as a result, began made his dramatic achievements. price

2. Inflationary Pressure

Inflation is the theory that over time, the value of money always decreases as prices rise. While the average price of a house is not $40,000 as it was in 1975, the number of gold coins needed to buy the same house is very stable: $40,000 in gold in 1975 would be a little over $310,000 today.

This means that no matter what the market for gold is, in the long run it is always better than holding cash without earning any interest. While gold does not pay interest, its price usually tracks the rate of inflation or better.

3. Demand and Demand for Gold

Supply and demand is the main driver of market price behind most things. While the price of gold is much more complicated than this basic formula, these factors come into play.

The supply of gold is heavily dependent on its price, as the cost of mining has risen so much. It used to be very easy to find and mine gold, with many stories of goldsmiths striking mother gold. Currently, extracting gold in large quantities is much more difficult and requires expensive equipment and technology. Also, since gold is not really “used” or consumed in the way that other commodities are, there is always a large reserve of gold without supply. So unlike most other commodities, the supply of gold will likely be more reactive to its value than directly influenced by it.

The demand side is equally consistent. As the price of gold falls, the demand for it in the use of gold increases (because gold is a very expensive commodity), but the investment demand for gold will generally decrease as prices go on a downward trend. The opposite is true, of course, if prices rise: demand for gold falls, and investment demand rises.

The Future of Gold Prices

Consider the economy and the inflation rate as the most likely indicators of gold prices in the future. Another major recession or a sudden increase in the inflation rate could cause gold to make another big run. Thus, if things improve in the global economy and inflation remains under control, gold prices will remain relatively stable and may fall further.

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