How is the price of gold determined?

31.07.2022

The only commodity that is always in demand is gold. It will never be ignored. Jewelry is always very popular and therefore the demand for it will never fall. As you can observe, the price of gold is never static. It is constantly changing. So what determines the price of gold and what factors does it depend on? It's time to talk about it.

The cost of an ounce is formed based on many factors. In addition to economic factors, social factors are also taken into account. The most significant of them are:

Dollar exchange rate

This is another factor that can determine the future value of the precious metal. When the dollar loses its value, the price of a gold ounce rises sharply. And the other way around, when the dollar strengthens against the euro. You can easily follow the formation of prices for the yellow metal in recent years, when the world currency has risen in price noticeably.

Natural disasters and epidemics

During such incidents, gold production decreases and the price of gold rises. Moreover, during a pandemic or natural disaster, gold is the most protected asset that gives peace of mind. A good example of that is the growing interest in investing in gold in 2020 during the COVID-19 pandemic.

Similarly, like natural disasters, the price of gold is affected by political instability, wars, and economic crises. In conditions of economic volatility, people prefer to invest in classic investment instruments that will not depreciate in an instant. Accordingly, gold is in high demand and rising in price.

Investor Behavior

When buying gold products or gold-bearing commodities, there is a huge demand for this precious metal. As everyone knows from school program, the greater the demand for a certain thing, the more expensive it is. The reasons for buying up are very diverse. It can be financial instability or improvement in the quality of life in a certain area. Having large income, people begin to buy more jewelry, and this increases demand. When there is a prediction for an imminent increase in the cost of an ounce, gold miners also do not sit idly by. They immediately sell all the remaining quantities of the yellow metal, and it all enters the world market. This can be explained by the desire to get as much profit as possible from sales, especially since technological progress can significantly reduce the cost of gold mining.

Volumes of gold mining in the context of different countries

The more gold is mined, the cheaper it is. Unfortunately, even with improved technology, gold mining around the world is not increasing. On the contrary, it tends to decrease. This, in turn, leads to a price increase of the yellow metal.

All of these factors play a role in both the global price of gold and price setting in local government markets. Therefore, within a single country, the gold rate may differ from the London official rate, but the trends towards its growth or decline throughout the world remain the same.

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