What Moves Gold Prices?
Since ancient times, gold has continued to be one of the most prized assets in the world. However, if you are thinking about investing in precious metals before doing your homework, hold that thought. While gold is a comparatively less risky investment option than stocks, fluctuations in its price depend on several opposing market forces. So before you go about buying gold bullion bars or other precious metals, here’s what you should know.
Why Do Prices of Gold Fluctuate?
The fluctuating gold price results from many different factors working in combination with one another. The financial advisors at Orion Metal Exchange have compiled a list of some of the leading causes of price movements in gold.
Gold isn’t famous only as a jewelry item; it has many other uses.
- It’s used in the manufacturing industry as an electrical conductor and as a material in life-support devices.
- It’s traded as an investment. For instance, some investors invest in physical gold, such as gold bullion bars, coins, and jewelry. In contrast, others find investing in paper gold convenient such as in ETFs, unit trust, and gold IRA accounts.
An increase in the demand for gold causes its prices to soar. In the last decade, China’s economic growth had fueled the demand for gold, which in turn caused prices to soar. The gold market has somewhat stabilized in the past few years, leading to stabilized economic growth.
Inverse Relation between Gold & Fiat Currencies
In the past, countries adopted the Gold Standard to value a country’s currency secured with the price of gold. Today, the gold standard is no longer followed. Instead, governments have started using fiat currencies where the value of a country’s currency is based on its ability to repay loans and the monetary supply. While this gives governments the freedom to increase or decrease the money supply as they see fit, it comes with its own set of risks.
If a government or the economy fails, then the currency gets devalued. In contrast, the price of gold shoots up, and its demand decreases. Here gold has an inverse relationship with the dollar, and when the dollar goes up, the gold prices will fall.
Investing in Different Forms of Gold
If you wish to invest in gold, you shouldn’t be too hasty. It’s not all about buying gold when things take a turn for the worst. It would help to calculate how much gold you should buy, how long you should store it, and what form of gold investment you should make. Different types of investment products have other risks.
For instance, buying gold bullion bars, silver bullion bars, or investing in gold coins is the most direct form of gold investment. However, this would require you to have secure gold and silver storage or private vault storage and proper insurance. Then there is the issue that you should buy bullion bars and coins from a trustworthy gold investment company like Orion Metal Exchange. Another option would be opening up a gold IRA account.