The Most Important Factors Affecting the Gold Market

Why the Gold Market Fluctuates?

Gold is a valuable resource that has been used for centuries to make jewelry, coins, and other decorative items. The price of gold is determined by various factors. Some of these factors are related to domestic economic, social, and political conditions, and some are related to international events, each of which affects the final price of gold in the market. The gold price fluctuations help traders make profits. In this article, we are going to review the most important factors influencing the global price of gold.

The Value of the United States Dollar

Global gold prices are generally inversely related to the value of the US dollar. All else being equal, a stronger US dollar will keep global gold prices lower and more under control, and a weaker dollar will raise global gold prices by increasing demand (because more gold can be bought when the dollar is weak).

Global Demand for Gold for Ornamental Jewelry and Industrial Use

In 2019, half of the demand for jewelry was gold, with more than 4,400 tons, according to reports from the World Gold Council. India, China, and the United States are among the largest consumers of gold for jewelry.

Another 7.5% of the gold demand comes from the industrial and technological uses of gold for the production of medical devices such as stents and precision electronic devices such as GPS units.

Therefore, the global price of gold is influenced by a simple form of supply and demand theory. When the demand for consumer goods such as jewelry and electronics increases, the global price of gold increases.

Protection of Wealth

In times of uncertainty and stability in economic conditions, such as economic recession, people turn to investing in gold because of the turbulent conditions. Gold is often considered a safe haven for investors in times of economic turmoil. When real or expected yields on bonds and other types of stocks and real estate fall, the desire to invest in gold increases, and the global price of gold rises.

Investment Demand

Currency trading funds that store gold and issue shares to shareholders on the basis of their, demand for gold for investment. The SPDR Gold Fund (GLD) was the largest holder at the end of 2019 with 915 tonnes of gold. Overall, purchases for various investment reasons account for 25% of gold demand. With the increase in this level of demand, the global gold price will also increase.

Gold Production

Gold production was 2,400 tons in 2008 and reached 3,500 tons in 2018 worldwide. Despite this increase in gold production in a 10-year period, gold mining has not changed much since 2016. It is because gold is no longer easily extracted and miners have to dig more mines to access high-quality gold reserves. Due to the challenging nature of accessing gold, many problems have been created and more money must be spent to access less gold. This adds to the cost of gold mining and leads to an increase in the global gold price.

Federal Reserve Monetary Policy

The monetary policy adopted by the Federal Reserve has the greatest impact on the global gold price, which is called the opportunity cost. Opportunity cost means giving up profit in a quick-return investment in order to earn more profit in another long-term investment.

With low-interest rates, bond returns will be lower than the inflation rate, and this is harmful. In such a situation, gold becomes attractive to investors. As interest rates rise, bond yields rise, and gold becomes less attractive to investors.

If the Federal Open Market Committee makes decisions in its annual meeting reports in the direction of future interest rate hikes, the global gold price will react to it and fall. And if this committee believes in the stability of the rates, the global gold price will rise.

Gold does not have a fixed interest, therefore it is an asset to compete with bank deposits, treasury bonds, etc. fixed interest. If the interest rate increases, the value of the dollar and bonds in the United States will also increase. As a result, people sell gold so that they can use the opportunity to invest in bonds for the benefit of their financial conditions. Or on the contrary, with falling interest rates, investors try not to miss the opportunity to invest in the gold sector.

Reviews of the 10-year US bond yields are a good indicator of interest rate determination in economic analysis. Because, in addition to the possibility of easy liquidity, bonds are closely related to the state of the American economy and housing.

Economic Data

Economic data, such as reports on the rate of employment, wages, and production, as well as information on the growth of the gross domestic product, affect the monetary policies of the Federal Reserve and lead to the direction of the global gold price.

In general, the decrease in the unemployment rate, the development of production, and the growth of the GDP of more than two percent in the United States cause a decrease in the global gold price. On the contrary, the increase in the unemployment rate, the weakening of the data related to the production sector and the growth of the GDP leads the Federal Reserve to the scenario of lowering the interest rate and leads to an increase in the global gold price.

International Political Crises

When global crises plague investors and the stability of the political situation is threatened, the global price of gold also increases. In fact, the parties involved in political tensions are an influential factor in the world’s political and economic situation.

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Therefore, not only global crises such as the occurrence of war, conflict, or conflict are considered an important factor in the fluctuation of gold prices, but even the conflicting parties are also influential in this issue with the policies they adopt.

Tracking the Fluctuations of the Gold Market Can Be Profitable

If you want to walk the steps of success in the field of gold investment, you should get familiar with the parameters affecting its value. Although gold is considered one of the most stable precious metals, its price is changing every moment.

Aron Groups is one of the most famous brokers for the gold market. It provides various trading tools to its users, one of which is the CFD for trading gold. At Aron Groups, traders are instantly informed of important economic analyzes and possible effects of economic and political events on the gold market.


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