Investors who are investing in gold for the first time may feel a little confused when they see the price of gold changing on a daily basis. Do you know the factors that regulate and cause the price of gold to change to this level? If you are able to understand the market and its functioning, you will be able to make better investments and earn profits.
Like any other commodity, gold is also driven by the forces of demand and supply. But gold gets extra advantage because people depend on it during emergencies and because of its high liquidation, its effect on prices is constant. Another fact is that gold that has been mined till now is still in trade. When the market is in good condition, huge quantity of stored gold will come up for sale.
Another factor that influences the price of gold is the way banks manage the gold they have. There are some banks that control approximately 19% of the world’s gold and this is a massive amount that is stored away. The price is based on how banks manage the gold, since they control a significant amount of the substance.
Recently, Indian and Chinese governments have purchased huge amount of gold and this has also pushed the prices of gold. Both the governments are trying to increase their stock and has caused a lot of pressure on the existing gold market.
Price of gold also varies due to the political and economical situation of a country. If the bank in a country fails, or if there is a political instability, or if the interest rates are touching the negative mark, it will have a direct impact on the prices of gold. When the bank fails, there will be instability and therefore, the prices of gold will go up since people will begin to buy gold in huge quantities. The economic confidence of any country depends largely on how people react to gold. The prices will stabilize if there is confidence in the monetary structure. If the bank fails, then the prices of gold will go very high.
If people are not getting dividends in bonds and mutual funds as per their expectations, then they will automatically turn towards gold for stability. This increase in demand will push up the prices.
If you are able to analyze all these factors in an efficient manner, then you will make smart decisions while purchasing gold.
This entry was posted on Friday, July 13th, 2012 at 7:20 pm and is filed under Gold. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.