Factors Influencing the Price of Gold

Gold is one of the most common forms of investment. It is by far the most sought-after metal traded in the market. Even before you knew about stock markets, fixed deposits, or mutual funds, buying gold is still one of the most preferred investing methods. Besides being considered the valuable asset, gold is potentially the most favored commodity across the globe.

There are ninjatrader automated trading strategies deliver a cost-effective and convenient way to participate in the robust market. The price of gold is influenced by many factors, including demand, supply, and investor behavior. Sometimes these factors work together, and the others are counterintuitive. As paper money loses value as more is printed, many investors think of gold as an inflation hedge.

Let’s see the fundamentals factors which can impact the prices of gold.

Considered as a safe-haven asset across the world, gold is important for portfolio diversification. Several factors can influence the prices of gold. With good knowledge and understanding of market dynamics and volatility, traders can prepare themselves to take advantage of good times in the gold markets.

Demand and Supply

The demand and supply of gold play a major role in determining the price, just like any other traded commodity. Gold is not a consumable product, unlike oil. The gold that has ever been mined is available in the world. Besides, the amount of gold mined every year is not high. as the supply is relatively scarce, the gold price increases with the increase in its demand.

Inflation

The value of currency decreases with the increase in inflation. Moreover, most other investment approaches fail to deliver inflation-beating returns. Thus, most people invest in gold. Gold acts as an ideal hedge as it is not affected by currency fluctuations even if the high inflation period gets extended.

Federal Open Markets Committee (FOMC)

FOMC meetings are held eight times every year to make US monetary policy and key interest rate announcements. The gold market climbs when the interest rates are cut and declines when the rates are increased.

US Dollar Index

The gold is traded in USD in international markets. The US Dollar Index is a weighted average of the dollar compared to the value of foreign-based currencies. So, when the value of the USD increases relative to the currency, the gold price tends to fall in USD.

Central Banks

The monetary policy and currency, managing inflation, setting interest rates and controlling interest rates are overseen by the central banks. The US currency is tied to gold. Central banks of the USA continue to hold large gold reserves. The US has large reserves of gold, and they still buy it as it acts as a hedge against the USD. Physical gold reserves strengthen the nation’s currency. Besides, the monetary policy announcements can impact the interest rates directly, which are correlated indirectly with the gold market.

The Bottom Line

Gold isn’t tied to anything else and makes a good diversifying element. The ninjatrader automated trading strategies can help you understand the ups and downs of the gold market.

Sarah K, a professional writer who share interests in different creative niches. Her ideas and tips towards such niches have contributed to the online community.