Gold today is sought after not to make jewelry and ornaments but also for investment purposes. Over the years, gold is being regarded as a store of value. It is considered a perfect hedge for investments, especially when stock markets and other financial instruments fail to yield the desired returns.
In recent months, while the world grappled with the worst ever health crises and the consequent disruption caused to the economy, Gold prices were constantly rising. This perplexed most investors, according to the experts at Gold Bullion Australia.
While a lot has been said about stock markets, many investors are completely unaware of what causes the prices to rise or fall. This article attempts to understand various factors that affect gold prices globally.
Demand and Supply
As is the case with any traded commodity, gold’s demand and supply play a significant role in its prices. Gold is a scarce metal, and only a handful of mines are operational throughout the world. To add to that, the recent pandemic stalled the mining operations entirely for some time, completely disrupting the supply.
On top of that, with business closing operations and stock markets down, people flocked to gold as a safe investment haven. This rising demand and short supply put upward pressure on the gold prices, causing it to rise even amidst slowdown.
Value of the US Dollar
It is common knowledge that the metal is dollar-denominated. Therefore the price of gold is inversely related to the value of the US Dollar. When the dollar strengthens, gold prices fall, and when the dollar weakens, the prices of gold rise. This explains why people regard gold as a hedge against inflation in volatile markets.
Inflation takes place if the prices of goods and services rise, and the value of the currency falls.So an investor who has invested in gold is immune to the erosion in US Dollars’ value because of the rising inflation.
Jewelry and Industrial Demand
According to a report by Statista, the world jewelry market stood at 21 billion Euros in 2019. Gold also finds applications in technology and medical devices used in manufacturing medical devices like stents, GPS units, etc.
Gold is a safe option for investors in economic uncertainty, currency devaluation, and inflation. When actual or expected returns on stocks, bonds, and other debt instruments fall, people turn towards gold. Therefore gold is regarded for protecting volatile markets.
Major Gold producing countries in the world include China, Peru, South Africa, United States, Russia, and Australia. However, the situation of gold mining hasn’t improved much since 2016 because gold reserves are depleting.
Miners have to dig deeper to access quality gold, not to mention additional problems like health hazards to the miners, environmental impact, etc. In other words, it costs more to mine small amounts of gold. This scarcity, too, adds to the gold prices.
People have long been and continue to invest in gold in order to protect their wealth. If you are looking to invest in gold, you can buy gold bullion and coins from reputed dealers like Gold Bullion Australia. There can’t be a better time to protect your investment.