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Factors affecting the price of gold

Factors affecting the price of gold

Gold has always been known as “the barometer of fear.” When people are uncertain about the economy, they turn to gold and bid the daily gold price up. It is common to all that inflation and deflation are the two major factors affecting the gold prices; however, there are other fundamental as well as psychological factors that also move the daily gold price to a great extent.

Read on to know some of the factors that affect the daily gold price value.

Monetary policy
The monetary policy is exclusively controlled by the Federal Reserve, and in fact, has the greatest influence on the gold price. The opportunity cost is a crucial factor because of which interest rates influence gold prices. Opportunity loss is when you give up a near-guaranteed gain in an investment for a greater gain in another. This leads to the loss of money, which makes gold an attractive opportunity for investments.

Economic data
The monetary decisions by the Federal Reserve are based on economic data like job reports, wage data, manufacturing data, and GDP growth, which can, in turn, affect the daily gold price. Since the country’s economy is quite robust, low employment rate, job growth, and manufacturing expansion are some factors that push gold prices lower.

Demand and supply
Demand and supply are two significant factors that can influence the daily gold prices. An increase in demand for gold will increase its price and vice versa. Moreover, a low supply of gold will lead to a hike in gold prices and vice versa.

The rising price of goods, which is also termed as inflation can impact the daily gold price. The higher the rate of inflation, the higher will be the gold price, whereas the lower the rate of inflation, the lower will be the gold price.

Currency movements
The price of gold is dominated by dollar, and therefore, the movement of the US dollar is another strong factor influencing the daily gold price. The price of gold increases when the US dollar rate falls. This is due to the rise in the currency rates all over the world.