Factors that affect Gold Prices: When and Why Do They Drop?

Gold is a commodity that has attracted renewed interest from investors in the last few years. First, it was due to the pandemic-induced lockdowns, and now the hyperinflationary environment constantly eroding the dollar’s purchasing power each month. This has everyone worried about their futures, especially investors that are invested in the stock market. 

If you are a new investor or one switching over from stocks or crypto, you must understand the factors that shape its price. In this post, learn about the market forces, including supply and demand, that determine gold prices.

Supply Factors

Gold has value because the metal is finite and is extracted from mines all over the globe. The top counties that produce include Australia, China, the United States, South Africa, and Russia. If the supply of gold were to get affected, then less gold would reach the market, and the price will go up. For instance, during the peak of the pandemic, a lot of the mines were closed, which caused prices to rise quickly.

Moreover, if the supply doesn’t keep up with the demand and new mines aren’t being explored or discovered, this glut would lead to a price increase. On the other hand, if a string of mines got discovered, this would reduce its price.

Demand Factors

Gold has always been viewed as a commodity of value across centuries. Previously, gold and silver coins were used as currency in regions across the planet and different civilizations. People used to buy jewelry and gold coins to grow their wealth.

The strong resurgence in demand for gold coins and bars s driven mainly by long-term investors who want to use it as a hedge against inflation and economic uncertainty. Investors try to diversify their portfolio by making gold a part of it as the price fluctuations in assets such as stocks are balanced out by the appreciation of gold. Investment gurus recommend having at least 40–50% of gold in their portfolios. 

Moreover, gold jewelry also enjoys robust demand in countries such as China and India, especially during the wedding season. With a rising middle class in such countries, the demand for gold jewelry is rising year after year, driven by cultural influences such as bridal jewelry. Gold also has industrial applications and is used to make electronic components.

Interest Rates

Gold prices are also influenced by interest rates, exchange rates, and other factors. When FED hikes its rates, investment vehicles such as bonds become attractive, and this can cause some investors to go towards it. However, many times that’s not the case as investors are simply long on gold and trust it more than the government, which they believe can cheat them or go bankrupt

Government Policies

Government policies also have an impact on the price of gold. Several central banks worldwide are trying to move away from the dollar. This is why they buy gold bars and coins to boost their reserves. Moreover, government policies such as taxes, duties, and incentives for exploration can spur greater demand and supply for gold. 

Geopolitical Events

Like economic uncertainty, geopolitical uncertainty can cause investors to turn to gold. For instance, when Russia invaded Ukraine, the global markets were in turmoil, with even ‘World War 3’ trending on Twitter. Stock markets, including New York Stock Exchange and Dow Jones, plummeted across the planet. 

Investors were fearing US and NATO were going to retaliate, and the situation was going to escalate to dangerous levels. While the pressures have eased slightly, the war still rages on as we enter 2023. This has affected the global supply chain, especially energy levels that have caused hyperinflation across the globe. Besides this, other geopolitical flashpoints include the Middle East, where even a little incident can lead to OPEC raising the price of barrel oil further.

Precious Metals Exchange Costs

Dealing with precious metals exchange can also cause the price of gold investments to increase. Especially when it comes to buyback fees and other service charges. This is why you must research before selecting to work with a precious metals exchange. Only work with companies accredited by recognized agencies, such as BBB. Also, only buy certified gold, ensuring you don’t waste your hard-earned cash on fake gold bars and coins. Check the reviews and history of the precious metal exchange to get a better idea about their processes.

Select an Affordable Gold and Silver Investment Company

On the lookout for a trusted precious metal exchange that can help protect your wealth during economic and geopolitical uncertainties? At Orion Metal Exchange, we help investors take the first steps in the world of precious metals investing. Our friendly staff has helped us get a rating of 4.9 Trustpilot, and we are also accredited by BBB. 

We only deliver the highest quality gold, open a silver ira, palladium, platinum bullion, and coins to our customers. Moreover, we have no buyback fees, which helps improve the experience for our customers. Our friendly staff also helps people with deciding on precious metals ira account storage options. 

If the current economic volatility is giving you nightmares, reach out to us, the leading precious metals exchange in the country today.