The two driving factors affecting the value of gold

factors affecting the value of gold

The precious metal has stayed with humanity since the early civilisations. It has held its value because of its eye-catching quality, which has been synonymous to luxury. As such, gold held men with its dominating power, moving civilisation and shaping its destiny.

These days, the power of gold lies with its market value. It is a sought-after investment not just in making jewellery but used in a lot of industries, including the medical and electronic fields. If you are trying to invest in the precious metal, there are driving factors that you need to determine.

These factors will help you sort when to start your venture and what could affect the value of your gold investment. It is also worth noting that the metal has had an increased value and consistently ranks as one of the best assets to hold since 2000.

Gold is Greatly Affected by Supply and Demand

The metal market does not have the same behaviour as stocks and bonds. Gold has no underlying performance measure because they are non-consumable and are therefore considered as speculative commodities.

The only way the precious metal’s price is affected comes from the market’s supply and demand. It is also worth considering that all the mined golds are still in circulation and that new reserves are being introduced in the market.

The rules of supply and demand dictate that if there is too much supply, prices are bound to go down and vice versa. Certain continents like Africa, China, and India have staple mining sources of gold and prices are generally lower compared to the rest of the world.

Jewellery demands tend to fluctuate with the value of gold, and when prices are sharp, jewellery demands also fall, relative to the demands of investors. The reason behind the market price movement of gold comes from its constant demand despite being mined exorbitantly.

Big Market Movers Stir the Value of Precious Metal

Some of the prime movers in the precious metal market are not consumers but central banks. They are considered a big industry mover because a nation’s central bank can potentially increase or decrease their gold reserve.

Unlike physical money and bonds, gold can be a dead asset when held at large amounts. It means holding on to a large reserve can have a debilitating effect on the economy as market prices tend to drop. As such, gold does not generate the same return as money or bonds.

One critical issue where a central bank becomes influential in the prices of gold is when investors are not interested in precious metal investment. When a central bank is on the opposite side of the trade, they tend to lower prices, affecting the overall prices of gold in the market.

The Prospects of Investing in Gold

Gold investments have been one powerful way of holding money without exposing yourself to the common risks of money market and bond fluctuations. People who have a steady reserve of gold tend to earn better when demands are high, and market prices are better.

Additionally, gold is also a liquid asset, meaning you can have converted into cash at the right time or when the needs arise. It is the reason why more and more people are interested in and join the bandwagon of gold investments.

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