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Monetary policy refers to the economic policy used to improve the health of a nation’s economic conditions. Such policies are created to reduce inflation and unemployment while increasing financial stability and economic growth.

These policies are defined by central banks as they set the money supply and determine interest rates.

In times of recession when central banks wish to stimulate the economy, they increase the money supply and reduce interest rates; this is referred to as an expansionary monetary policy.

When inflation gets too high, central banks limit the money supply and increase interest rates; this is called contractionary monetary policy.

The Relationship Between Monetary Policy and Gold

Monetary policy and the price of gold are closely related. These policies have a direct impact on the money supply in the market which determines the rate of inflation.

Gold is considered an inflation hedge; it helps counterbalance the negative effect of inflation in the market. The money supply also determines the exchange rates; the actions of the Federal Reserve impact the strength of the US dollar and the price of gold.

Because gold is a safe-haven asset, investors purchase it as insurance during unstable economic conditions; buying gold is a method of risk aversion.

The money supply also determines the exchange rates; the actions of the Federal Reserve impact the strength of the US dollar and the price of gold. Because gold is a safe-haven asset, investors purchase it as insurance during unstable economic conditions; buying gold is a method of risk aversion.

The Piling of Funds In Gold

According to Reuters, global consumers will purchase 4,370 tons of gold by the end of 2019; this is the highest it has been in the last 4 years. The increase in demand has also hiked up the price of gold, yet people continue to purchase it.

After reaching a certain price point, gold does become too expensive and because of this it’s prices are forced to decrease, but until then people will continue to turn to gold for investment purposes.

With another financial crisis looming over us, investors have decided to take the safer route and purchase gold; this way, if a financial crisis does happen, the gold offers a financial cushion. In some cases, gold can produce a net gain.

Once again, economists are warning consumers of another financial crisis. It’s in people’s best interest to purchase gold and protect their wealth from rising inflation rates.

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