Did you know that 3 Olympic swimming pools can hold all the gold ever mined in the world? That’s not much to go around!
Gold is one of the most valuable resources on earth; however, many different factors determine its price at any given moment. If you are planning on investing in gold, you must understand exactly what these factors are.
Keep reading to learn about the influential factors that drive the price of gold, and how they can help you when considering gold trading
Supply and Demand
Like everything, the economic principle of “supply and demand” influences gold. Concerning the price of an economic good, the principle of “supply and demand” states that prices fall when supply is high, and demand is low. Reversely, when demand is high and supply low, prices will increase.
Gold tends to be very expensive not because of its usefulness but because of its rarity. There is simply not a lot of discovered gold globally, which increases the price.
However, gold is a bit different than other products. Since gold is not a consumable product like gasoline or food, its supply never truly decreases. The gold that was here yesterday is still here today, and more and more gold is mined each day. One might think this would seriously plummet its price; however, this is not necessarily true.
Most gold can be found in luxury items like jewelry. Just think of family heirlooms or wedding rings. These items are often kept for lifetimes and not recycled. Thus, the gold used to create these items is generally taken off the market for extended periods of time.
The rate of new gold discovered is also decreasing. As a result, miners have to work harder to find new gold, which drives up the price.
Inflation
Gold and the value of the U.S. dollar are inversely related to one another. This means that when the value of the U.S. dollar increases, gold prices will fall, and when the value of the dollar decreases, gold prices will rise.
Inflation is the decrease in the purchasing power of money. So when inflation is high, the dollar’s value goes down. This will increase the price of gold.
If you’re interested in investing in gold, it’s crucial to understand the best times to buy and sell. GoldSignals is a great way to make the most profit out of your gold investment.
Central Banks
Perhaps one of the biggest influencers when it comes to the price of gold is central banks. Central banks hold deposits of gold, depending on the amount of gold they hold, this will either raise or lower its price.
When central bank reserves are made more out of gold than paper currency, the price of gold typically rises. The amount of gold the central banks release can drastically impact gold prices globally.
Take-Aways for Gold Trading
So what should you take away from all of this? Well, gold is a precious commodity that can be a great investment. It has been seen as something with intrinsic value for thousands of years and that doesn’t look like it’s going to change any time soon.
If you are considering investing in gold or gold trading, realize that there are better and worse times to buy and sell. Understanding the factors that influence gold prices can greatly increase your potential at increasing your profit.
Want to learn more? Feel free to explore our other blog articles for additional information.
