Understanding the Reasons Behind Gold Price Fluctuations
Gold is not only used for investment purposes but is also used to create jewelry, electronic and medical devices. Gold was over $1,700 per ounce in March 2021, roughly around $300 more than its value in September 2020. What causes these fluctuations?
Here is a list of factors that drive the price of this precious metal over the period.
1. U.S. Dollar Price Fluctuations
Gold is dollar-denominated which means it is inversely related to the value of the United States dollar. When the U.S. dollar appreciates, the price of gold falls. A depreciating dollar is likely to increase the price of gold by increasing its demand as more gold will be purchased as an investment when the dollar weakens.
2. Increasing Jewelry and Industrial Demands
The most common and admired use of gold is in jewelry, where approximately 4,400 tonnes of gold is used in jewelry production annually. Gold is also widely used for industrial purposes, where 7.5% of demand attributes to technology and industrial uses. As the desire for these goods increase, so does the price of gold.
3. Central Bank Reserves
With the diversification of the monetary reserves by central banks, a lot of the paper currency is being converted into gold. Reserves of many nations across the globe are entirely based on gold. According to the World Gold Council, the greatest amount of gold in 2019 was bought by turkey, followed by Russia, Poland, and China.
4. Increasing Demand of Gold as a Protection of Your Wealth
When economic situations are unstable, gold is a refugee for many investors because of its enduring value. It is a safe haven for investors during economic uncertainties. When the returns on financial securities such as bonds and equities and real estate fall, gold investments take a rise, increasing their price.
5. Gold’s Demand in The Future
Global demand for gold is anticipated to be 1,000 tonnes more than the supply. With restricted mining capacity, shortage in the supply of gold is another factor for fluctuations in gold rates.
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