Factors That Affect Gold Value

Factors That Affect Gold Value

The relationship between gold prices and dollar value

The value of the US dollar and gold price under normal circumstances are inversely related. A stronger dollar makes a cheaper gold. This is based on the fact that global gold prices like many other valuable commodities are denominated in dollars. Therefore, if the dollar is strong, it makes such commodities relatively expensive in other currencies. The end result is a fall in demand sets which leads to a fall in prices. This article will focus on factors that affect gold value.

It is however imperative to note that volatility of gold in the market can be reshaped by economic and political influences, locally and across the globe. Being one of the most precious metals, gold is widely sought after for investment purposes and in jewelry market because if its value. Similarly, it is widely used across different parts of the globe in manufacture of medical devices and certain electronics

Top factors that affect gold value

Central bank reserves

Central banks across the globe hold paper currencies as well as gold in reserve. According to the World Gold Council, central banks have in the recent past purchased more gold than what they are selling and this is the first time it has happened over decades. As the banks diversify their monetary reserves away from paper currencies which they have accumulated over time, the value of gold increases. The United States of America, Euro area, Greece, Portugal, France, Germany and Italy for instance have their Central banks reserves primarily composed of gold.

Value of the U.S dollar

The value of gold is inversely interconnected to the value of US dollar. This means that with a stronger U.S dollar, the value of gold tends to drop and is more controlled. A weaker dollar drives the price of the metal higher and it can be attributed to the fact that many people have a habit of trading in the dollar when its value is high.

In the event of economic uncertainty and with a weaker dollar, many people invest in gold in the form of gold coins or funds, jewelry and vehicles.

Global jewelry and industrial demand

Global jewelry and industrial demand are of the factors that affect gold value. For example, back in 2010, jewelry alone accounted for up to 54 percent of gold demand, according to the London Bullion Market and World Gold Council . It amounted to 3,812 tons of gold, with China, the United States of America and India being the largest consumers of gold for jewelry in terms of volume.

In China for instance, consumers often utilize 200 tons of gold and it is a huge amount. This trend tends to increase year in year out because of its demand for medical and industrial use. Gold is used in the manufacture of precision electronics including GPS units and stents. Gold value can therefore, be largely affected by the simple demand and supply theory that states that with an increase in demand for consumer goods such as electronics and jewelry, the value of gold increases.

Gold production

China, United States of America, Russian Federation, South Africa and Peru are the major players in global gold mining. The global production of gold affects its value and a good example is on its demand and supply. Production of gold increases by up to three percent when there is a high demand for the metal.

However, it is good to note that since early 2000, gold mining production has decreased thus affecting the value of gold. This is because easy gold has been mined and now many miners have to dig even deeper to get quality gold reserves. It can be quite challenging to access gold and this raises another issue, environmental impact and additional hazards. In other words, getting gold is quite costly especially in today’s age and era and with an increase in the cost of production, the value of gold tends to rise.

Other factors that affect gold value

Apart from the above factors, technical trading, better investment areas, inflation, and market jitters as well as benchmark data reports also affect the value of gold. For instance, with apparent news that certain weaknesses in the labor market cannot be avoided, the price of gold skyrockets.


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