Gold is always considered as a very important safe asset across the world during financial trouble. people consider it as a symbol of wealth and status. During financial trouble investor and trader always rush for Gold.
Gold is one of the most favoured forms of investment. Gold is always perceived as a safe investment that will help to recover from any financial crisis.
Currently, many questions hit your mind like which factors affect gold prices. So, let’s check and learn about it below.
There are various factors affecting the price of gold. Let’s look at some factors below:
1. Central Bank:
The central bank’s decision to buy or sell gold can affect the price due to the large volume of transactions in an open market.
2. Fed decision on IR:
Both gold and interest rates have an inverse relationship. When the interest rates increase, people sell off their gold and use the money to earn high interest. When the interest rates decrease, people buy more gold resulting in an increase in demand.
3. Country Import Duty:
As gold is not produced in all country, it is important for consumption from other countries and import duty plays a crucial role in price fluctuations.
4. Government Reserves:
All countries government holds reserves of gold. When RBI starts to buy greater quantity than it sells, the price increases as it will result in insufficient supply of gold and vice versa.
5. Safeguard from uncertainty:
To protect from uncertainties, people wish to invest or buy gold as it is a safe commodity. Gold is only instrument that rose during uncertain market.
6. Correlation with another financial asset:
Gold is a highly effective portfolio diversification because of its low negative correlation with all the major asset classes. When shares of companies plunged there is an inverse relationship shown between gold and stock prices.
7. Geopolitical factors:
During geopolitical tension between two or more countries, gold usually does well. During crises various asset classes have a negative impact but there is a positive impact towards gold as it acts as a safe haven for parking of funds.
8. Supply & Demand:
When there is a rise in demand for gold, the price increases, and vice versa. Gold is one commodity that is continuously in demand. Demand and supply play a major role in pricing of any financial instrument.