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What Drives the Price of Gold?

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Old 20-11-2016, 22:16
Join Date: Mar 2014
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Default What Drives the Price of Gold?

Gold holds a paramount importance since ancient times and the proportion of gold a family possessed was the measure of their wealth. Today, things haven’t changed much. Gold is being used in a lot of industrial processes such as metallurgy and electroplating. As of March 2011, the price of gold reached a record high of 1420 dollars and there were some factors which caused this rapid ascension. These are as follows:

Gold Mining
The major players who extract the most gold are India, China and Australia. The world’s gold production has a causal effect with the prices of gold. All around the globe, gold mining increased by a staggering three percent since 2010 which is an enormous value. Moreover, the predicaments associated with mining gold have also increased. The gold which was easy to extract has already diminished and the environmental factors which may be hazardous for miners are much more than they were before. They have to dig deeper in order to find some valuable reserves of gold. All this comes at a high cost and therefore, as the expenditures related to gold mining increase, so does the market worth of gold.

Central Reserves for Gold
The central Banks are responsible for the hoarding of gold and other currencies. They have built reserves for this purpose. It was discovered that central banks have been hoarding more gold than they were actually selling by the World gold council. The banks are also bringing about a revolution by encouraging a paper free culture which is also a really big problem. This is one of the main reasons because of which the gold prices have soared.

High Asian Demand
The Asians are the major buyers of gold. Therefore it is clear that the Asian demand for gold is a key factor in driving the values of gold. This is mainly due to the norms and traditions of the Asian culture. The value of a family is measured by the amount of gold they possess. Moreover, it is obligatory in marriages to depict pomp and show by wearing costly jewelry. This depiction of ostentatious behavior affects the prices of gold in the market.

Interest Rates
Interest rates and gold prices have been co-related for many years. Their rise and fall can be linked to similar causes. Gold is a currency that pays no interest; therefore, people are more likely to lose money they invested to buy it. On the other hand, they could have earned more by cash through interest. The prices of gold are directly proportional to the rates of interest and as the interest rates increase so will the price of gold.

Relationship with the Dollar
It has been observed that Gold prices have increased when the price of Dollar has increased. For more than 10 years, gold has increased by 273pc for British and 255pc for the USA. Similar results have been visualized in several decades.

Relationship with Oil
Oil prices have the strongest link with the increase in crude oil prices. Since 1986 they are assumed to move together more than 60pc of the time. If the prices of crude oil increase, it is likely that the prices of gold will also increase with it.

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