What Drives the Price of Gold?

What is it that decides how valuable a piece of gold should be? If you look back at the annuals of history, you’ll find that the ancient Egyptians were the first people to smelt gold all the way back in 3,600 BC, thousands of years later, people began to wear gold as jewelry, and headdresses. Since some of the earliest days of man’s existence, it’s safe to say that humankind has had a fondness for gold, and we’ve always appreciated its value.

Today, gold isn’t just something to wear and show your wealth – it’s also a powerful investment opportunity in the right circumstances. Gold can be used in everything from electronic device manufacturing, to diversifying your portfolio. The question is, how do you define the price of gold or the so called gold rates. Which factors drive the cost of the precious metal up or down? If you are sure about investing in gold than you should make sure to check the current gold rates here: www.business24-7.ae/gold-rates-in-dubai/

 

The Central Bank Reserves

One of the factors that affect the price of gold is something called the “Central Bank Reserves.” Standard banks hold gold and paper currencies in reserve, and the World Gold Council suggests that many central banks currently have more gold than they’re selling – this is something that hasn’t happened in many decades.

As banks continue to diversify their monetary reserves and move away from paper currencies, the price of gold continues to rise, because there’s less available to access. Many of the world’s nations have bank reserves packed full of gold, including Greece, Portugal, the United States and Italy.

The Value of the Dollar

Another thing that generally drives the price of gold is the value of the dollar. One of the things that makes gold such a good diversification strategy, is that the price of this precious metal moves inversely to the vale of the United States dollar. This means that if the US dollar is at a good value, then gold will be at a lower value and vice versa. This is because people trade dollars more when the dollar is strong. On the other hand, gold is a powerful investment when the value of the dollar begins to suffer.

The Demand for Wealth Protection

As mentioned above, when times of economic uncertainty abound, people often turn to gold as a hedge against uncertain dollar values and more. During the recession of the 2000s, many people began to invest in gold because it maintains value no matter what. Many people consider gold to be an important investment during uncertain times, particularly when the expected returns on equities, bonds, and real estate begin to suffer. As more people invest in gold for wealth protection, the value of gold begins to rise. Many consider gold to be a hedge against inflation, currency devaluation, and deflation. What’s more gold, can also be a way to access protection against issues caused by political instability.

Industrial and Jewelry Demand

54% of gold demand in 2010 came down to the request for jewelry, according to the World Gold Market. The United States, China, India and the UAE are some of the biggest consumers of gold jewelry when it comes to volume. For instance, demand for gold jewelry in China during 2011 reached 200 tons during the first 2 months. You can check the places where you can buy in UAE online here: www.business24-7.ae/buy-gold-in-uae/

 

Of course, gold is used for a lot more than just jewelry today. This precious metal can also be very valuable for medical and industrial purposes too. It can be used for everything from GPS manufacturing, to creating medical devices. As demand for these objects goes up, the price of gold differs.

The Production of New Gold

Finally, when new gold is mined, refined, and released into the world, this can drive the price of existing gold assets down, because there’s more supply in the environment than demand. In 2010, gold mine production increased by approximately 3% as a series of new large-scale mines increased operations. However, the gold mine production throughout the world that we see today is still seeing a steady decline, as many miners have to dig much deeper to access any gold reserves by mineweb.net

The fact that we cannot access gold as easily today as we could in the past also adds to the value of gold because things that are harder to get hold of are naturally more precious and valuable.

Finishing Thoughts on Valuing Gold

Ultimately, it’s safe to say that the human species has always had a strong love affair with gold, and the recent recession has stirred something of a gold rush in the modern world . It’s worth noting that although many things can affect the price of gold, that doesn’t mean that this precious metal is ever likely to lose its value completely. The fact that gold is a commodity in limited supplies means that it will always be worth something, particularly for investors looking to diversify.

 

 

Disclaimer: This content does not necessarily represent the views of IWB.

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