What factors impact the price of gold?

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As a timeless symbol of wealth and status, gold continues to be a sought-after asset for investors. But the price of this precious metal depends on many factors, including economic trends, geopolitical events and technological developments. Considered a prized commodity for both individual investors and countries since ancient times, there’s a global web of influence on the rise and fall of the value of this rare currency in our modern world.

Here, we take a look at what factors impact the price of gold.

Supply and demand

At the core of all price dynamics lies the fundamental principles of supply and demand. And whilst gold retains additional, inherent value in the eyes of man, how much you can attain or sell it for still depends on how much it’s worth in the current climate.

Mining output and changes in consumer demand collectively shape the value of gold, which can be predicted by economic indicators. This is because its value is inversely correlated with the strength of major currencies, so during times of inflation, the price of gold rises as the strength of USD and GDP falls. Therefore, inflation rates, interest rates and growth in the value of paper currencies can be pivotal in determining its appeal as an investment.

Global influence

Government vaults and central banks are a large source of much of the Earth’s gold, which historically has helped build empires and fuel the development of first-world countries. When economic instability forces the value of paper currencies to fall, these gold reserves serve as a safe-guard against the country’s wealth and status.

In times of economic uncertainty, gold retains its value and is used as a hedge against inflation. This is because the geopolitical landscape serves as a powerful catalyst for gold price movements, as tension, conflict and political instability can trigger investors to flock to gold as a safe-haven asset. As geopolitical conflict disrupts supply chains and shakes the economy, the liquidity of this yellow metal is an attractive investment as it can be easily bought and sold, even in times of crisis.

Technological advances

There’s no doubt that gold is visually alluring, but did you know it is used practically in several major industries? Because it doesn’t react with other substances, it’s used frequently in healthcare. From filling decayed teeth and lining ear implants to being used in pacemakers to combat heart disease, the biocompatibility of gold makes it invaluable in the medical industry.

The metal is also frequently used in electronics, as it’s an excellent conductor of heat and electricity and doesn’t tarnish. It also reflects up to 98% of infrared radiation, which makes it brilliant for astronaut suits, satellites and space vehicles. As a highly reflective material, gold is also incorporated into windows in tiny quantities to make the glass more energy efficient.

Naturally, as modern industries find more and more uses for gold, demand grows and its price and value is affected accordingly.

Keep up with trends

If you’re looking to invest in gold, it’s worth keeping up with economic trends and the stock market. Bear in mind that whilst stock benefits from economic growth and stability, gold tends to profit in times of distress and crisis. As a long-term investment, many consider the beautiful metal to be well worth adding to their portfolios.