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Gold is a precious metal with which mankind has had a long and illustrious relation and continues to do so. Gold served as money until other forms of currency were devised and even now gold is bought as an investment...

31 Dec 2011

By Rajivi Sharma
Gold is a precious metal with which mankind has had a long and illustrious relation and continues to do so. Gold served as money until other forms of currency were devised and even now gold is bought as an investment. The innate high value of gold makes it a reliable form of wealth, no matter the conditions. This makes it a hedge against economical fluctuations. The actions of people based on this principle drive the price of gold.

For the prospective buyer of gold, it is important to know what all factors affect the rates of gold. This will allow a person to predict with good accuracy the trends in the rates and thus be able to direct an investment to more profit.

The Five factors influencing price of gold

--The first factor is rather basic and depends on the simple economics of supply and demand. This is true of any commodity. If the demand for gold increases (particularly in the Asian markets of India & China) suddenly and the supply cannot meet the demand, the prices will increase. Similarly, if production of gold is hit because of a miners' strike and the supply falls, this will also lead to an increase in prices.Although there are many hidden factors that are said to influence price of gold, broadly speaking, there are only a few factors that certainly do. The remaining factors are generally speculative and not mutually agreed upon.

--The second factor is the gold and other policies of central banks. The banks often invest in gold as a hedge against inflation. Moreover, their other policies on interest offered on savings also affect the prices. A higher interest rate will lead to people investing in currency, whereas a low interest will increase gold purchase.

--The third factor is the social conditions prevalent. In times of war, emergencies, the price of gold shoots up as the value of the prevalent currency is in doubt. Since one can be sure of the value of gold, people try to acquire as much gold as they can, pushing up the price of gold.

--The fourth factor is the state of the economy. If the economy is in the doldrums with the markets performing in a shabby manner like now, prices of gold will increase due to more people choosing to invest in gold.

--The fifth factor is the value of the US Dollar. Since the dollar is the currency that most people incest in any fall in its value will lead to the prices of gold shooting up. The gold rate has always had this relationship with the Dollar ever since the dollar became the global trading currency.


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COMMENTS (1)
Harshit tyagi
08 Jan 2014
factors should be divided in two parts n that should be domestic factors and international factors
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