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What Affects the Gold Price?

Wednesday, November 15, 2017

While it’s clear that the gold price is far from constant, and that there’s great potential to make money from the fluctuations, it’s a lot harder to work out how to predict the falls and rises. Well, if there was a simple formula then everybody would do it. But there are certainly a few trends that smart investors over the years have managed to track. Here are a few.

Inflation hikes gold prices

Over time inflation has tended to cause gold prices to rise. This is because gold is generally believed to hold its value, so if Sterling or the Dollar becomes less valuable, then gold will become more expensive relative to the currency. In keeping with this trend, deflation or low inflation tend to reduce the gold price.

US interest rates

In much the same way as with interest rates, the general fortunes of world economies have a significant impact on the price of gold. When economic trust is lower, an increase in demand of gold is seen with ‘safe-haven’ buying, when people look to secure their wealth in a more trusted commodity than uncertain stocks and shares.

The biggest and most important world economy is the United States. Good fortunes for the US economy therefore reduce demand and the price of gold, and uncertainty creates demand. Interest rates are seen to have a connection to the gold price in this way as the price of borrowing holds a strong influence over economic growth.

Buy gold bullion in political uncertainty

This is closely tied to the previous point. ‘Safe-haven’ buying is a feature of political uncertainty just as much as it is with economic uncertainty. Uncertain political situations breed weak economies – and nothing sets the price of gold soaring like a weak economy. The rise of gold prices in the 1970s and 2008 should tell you all you need to know about that.

If you want to take advantage of the changing gold prices, take a look at our range of investment gold bars and gold coins here.