What Affects the Price of Gold?

Many factors affect the price of gold. From the economy to uncertainty in the world, the price of gold has been known to fluctuate, even if it has proved to be a stable investment over time.

The economic impact of this precious metal should not be understated, even though the United States dollar is not tied to gold anymore. If you notice fluctuations in the price of gold on a day-to-day or week-to-week basis, don’t fret — your investment will likely still be a smart one for you, despite the outside factors that drive the price of gold.

There are three main factors that affect the price of gold: the economy, supply and demand, and mining. Let’s explore each of these factors more in depth.

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Economy

One of the big drivers of the price of gold is the global economy. In general, trends indicate that when the global economy is doing really well, the price of gold goes down. And when the economy is in a recession or is suffering, the price of gold rises as investors try to hedge against failing investments.

As seen in recent events in light of COVID-19, gold has hit an all-time high as the global economy has suffered and sunk into a recession. Because the economy has suffered as unemployment has skyrocketed and the stock market crashed, gold prices have risen to the point that many wonder if it could get any higher in the next five years.

Supply and Demand

Like any commodity, supply and demand affect the price of gold. When there is a high demand for gold, the price will increase. When demand is low, the price will mimic that as well.

Alternatively, if there is a large supply of gold but not the demand to match it, the price will become lower. And if there is a shortage of gold but high demand, the price of gold will drastically increase.

It’s important to note, however, that gold is not a consumable product, like crops. All of the gold that has ever been mined is still present on the earth — whether or not it’s still being used or not. (Think of the gold necklaces in your grandmother’s jewelry box that aren’t being used!)

Mining

The gold that isn’t already in circulation and has yet to be mined can affect the price of gold. Of course, this primarily affects people who invest in gold mining companies’ stocks, but it can also affect the price of gold itself.

If there is not a lot of gold being mined, or if the workers in the mine go on strike, or if weather affects the ability to mine gold, the price of gold can be affected. Arguably, this isn’t the greatest driving factor in the price of gold, but it’s important to recognize the impact that the mining of gold has on the industry.

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