Gold is often thought of as a safe investment and this really is the case. The price does fluctuate just like other commodities but it’s worth rarely changes too wildly and it never seems to lose value too much. There are many factors that can affect the price of gold and it could be worth understanding them if you are thinking of investing in the precious metal. It is the perfect investment opportunity for both short and long-term investors, here are the 5 most common factors that influence the price to help you understand what can affect your profits before you make your investment.
#1. Monetary policy/FED speak
Monetary policy as controlled by the Federal Reserve can have a huge impact on the price of gold. This is because of a factor called ‘opportunity cost’. Opportunity cost is the idea that an investor might forgo a guaranteed or safe investment such as gold when interest rates make a different investment appear more exciting. If interest rates rise, the price of gold can decrease as investors choose to invest in alternatives. Check out the interest rates online.
#2. Supply and demand
Simple supply and demand can affect the price. An abundance of gold could lower the price, especially when paired with low demand. When gold is low in supply, the price can really increase, especially if it becomes more sought after. If you wish to purchase gold, nuggetsbygrant sells real gold nuggets, with a certificate of authenticity backed by Orocal.
High inflation can push gold prices higher whilst deflation can lower the price. This is because during periods of high inflation the Federal Reserve can release more currency into the economy which devalues each note or coin in circulation. As gold holds its value, investors tend to look to it as a better investment opportunity when this happens. Periods of high inflation can be tough as the cost of living increases. Check out our post on budgeting goals to make sure you are ready to face all financial emergencies.
#4. Currency movements
The value of the US dollar has a huge influence on the price of gold. When it is high compared to other currencies around the world the value drops whereas a falling US dollar increases the price of gold. Keep an eye on the value of currency from around the world to help predict what will happen to the value of gold.
ETFs have a very small impact on the price of gold, but for the sake of diligence, they are worth keeping an eye on if you are trying to make the most out of your investment. ETFs are specialised funds that investors can purchase to help them spread risk in their investment portfolios. Since many of these funds include the purchase of gold, should there be an increase in EFT purchases it can affect the price of gold through the supply and demand model. An increase could decrease the supply, which can increase prices, whereas if sales of EFTs slow down supply could be increased and gold prices could decrease.