What Causes the Gold Price to Change - Gold Bullion Co.
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Gold prices are a relatively stable way of making an investment over the long-term. However, the price does move up and down to some degree. But what causes the gold price to change? The usual logic behind the movement in prices is thus.
Gold – A refuge in troubled times
During times of relative political and economic stability, the more popular route for investors is to move money into companies to increase the value of their investment. Companies make money from inventions they develop and then sell, or from the fractional profits on the goods they produce or trade they carry out.
In times of economic uncertainty, then gold and government bonds are seen as secure havens. As there is a relatively low supply of gold, this causes the gold price to rise.
Should the problem be seen as systemic (as in the banking crisis of the late 2000’s) many investors will also avoid government bonds, particularly if there is a chance that the government might collapse, or be unable to repay the interest rate on those bonds.
Why doesn’t the gold price crash during economic stability?
As gold is a precious metal in its own right, it is not surprising that there is a demand outside of the traditional uses of gold as a currency and store of wealth. Gold is important to the electronics industry as well as to the jewellery trade. Its price is supported by the demand from those sources for the mineral.
Regardless of financial profits, the stability of the financial system, sees central banks hold large gold reserves. This storage and buying of gold also acts to constrain sell-offs and market dips. Whilst the gold is no longer used to directly back the various currencies, it is still used as a mark of strength by national banks such as the Bank of England.
Private holdings of gold
It's also worth noting that a number of companies and high-net-worth individuals choose to hold gold even in the good times. This is sometimes due to their belief that gold will, over time yield profits. It is also used as a hedge against currency fluctuations by people who are exposed to severe currency fluctuations.
Regardless of the issues that lie behind what causes the gold price to change, the Gold Bullion Company can supply you with high-quality gold bullion and coins direct to your home.
