Gold is an asset in which most of us are invested in either directly or indirectly through the investments we make or need to make in the form jewellery. Hence its time you know about the factors that affect the gold prices you see online when you look up things like Mumbai or Gujarat gold rate So let’s understand about these factors that really influence the gold prices in a bit detail:
- Monetary policy
Perhaps the biggest influence on gold prices is monetary policy. Monetary policy can be defined as the actions of a central bank, currency board or another regulatory committee that determine the size and rate of growth of the money supply. This can impact the price of gold due to its status as a store of value. In times of crisis, investors tend to flock to gold as a haven. In turn, this means that when there is uncertainty in global markets, it tends to benefit gold prices.
Interest rates have a big influence on gold prices because of a factor known as “opportunity cost.” Opportunity cost refers to what an investor gives up when choosing one investment over another. For example, if you buy a house, you forgo the opportunity to invest that money in stocks or bonds or other assets. Likewise, with gold, investors tend to hold the precious metal when interest rates are low because their opportunity cost is low.
The opportunity cost for holding gold is affected by both the level and direction of interest rates. When interest rates are rising, investors tend to avoid holding gold because it does not offer any yield and they would be better off investing in an asset that offers some kind of return. On the other hand, if interest rates are falling gold is the haven
- Economic Data
Another driver of gold prices is economic data. Economic data, such as the jobs reports, wage data, inflation numbers and even retail sales and housing starts can affect gold prices. If the underlying economy is strong, it usually means that interest rates are rising, which increases the opportunity cost of holding non-yielding assets like gold and weighs on its price. However, if economic growth slows sharply or dips into recession, then it may cause investors to sell riskier assets for the relative safety of gold.
This is one of the most crucial factors when it comes to gold price movement. In periods of high inflation, investors flock to gold as a hedge against losses in purchasing power due to currency devaluation. Gold is seen as a better store of value than paper money over long periods due to its inherent limited supply and lack of counter-party risk.
- Supply and demand
This is one of the most important factors affecting gold prices and it includes multiple sub-factors or components. The most important factors include mining supply, scrap recovery, and demand. Gold prices are affected by mining supply for two primary reasons: (1) new mine production brings the new metal to market and (2) changes in the costs of producing gold can alter the supply from existing mines. Scrap recovery represents the amount of gold recovered from old jewellery and other materials that are available for sale on the market. Changes in the cost of recovering scrap will also impact supply.
In terms of demand, several key factors influence the demand for gold as an investment or in industry. Consumer demand in places like Asia and India is one of the main drivers of increased market activity, while industrial demand can be impacted by technology trends, as well as government policy on currency reserves. Supply and demand is one of the major factors affecting gold prices. You can confirm this by tracking the gold price today in Varanasi or Himachal whenever you hear the news about a problem in the global supply or demand of gold. . You can visit Khatabook to learn how to keep track of these prices like a pro.