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What causes the price of gold to fluctuate so much?

Published by Roland Uriko in category Economy on 13.01.2022
Gold price (XAU-GBP)
GBP/oz1 480,10
+ GBP0,40
Silver price (XAG-GBP)
+ GBP0,17

At a time when investing has become extremely popular among Brits, suitable asset classes and opportunities to invest their money are sought on a daily basis. One of the safest ways to invest is definitely gold, as it allows you to preserve the value of your assets, especially since long-term investment is the most sensible way to grow your assets.

As with almost every other asset class, the price of gold moves up and then down. But what the price depends on and why the price doesn’t stay the same, we’ll talk about that right away.

Depending on the world market price

But how much does gold still cost? To do this, we need to look at the world market price chart, which shows the current price of gold and its movement in real-time. As a rule, the price of gold is in ounces – that is why investment products are mostly produced in ounces, not grams. This also makes it easier for the investor to follow the chart and draw conclusions from it.

As with other asset classes, the world gold price depends on the volume and the number of transactions in gold. In today’s market, about 99.7% of transactions are made with virtual, in other words, paper gold, which essentially means that traded are securities, not physical gold. In this case, it is never possible to see what was bought with one’s own eyes, as it belongs to a larger institution. In this case, you didn’t really buy gold, you bought a promise.

In the case of physical gold, it is much more transparent: your investment is visible and tangible, and that means that you own all the assets all the time. Physical gold also has an added emotional value, be it the colourful cultural background of a historical gold coin, a special story of how gold was given to you by a companion or family, or numismatic value – you just like collecting gold coins with a special design.

Demand and tensions in society

As has been said before, the price of physical gold also depends on the world market price, which is derived mainly from transactions in the precious metals markets in New York, London and Asia. Of course, the price is largely dictated by demand – a good example of physical gold is the coronavirus pandemic, which pushed gold prices to record levels.

There is a simple reason for this: when a person feels the approach of a crisis, he or she always turns to safer and more secure asset classes. Since gold has historically provided such a “refuge” from a crisis, one cannot wonder why a similar pattern was repeated in light of the pandemic.

However, the price of gold is also sensitive to all sorts of other events in society. It could be said that the price of gold reflects what is happening to us in the world quite accurately – if tensions and uncertainties arise, the price of gold will most likely rise and force individual investors and larger institutions to look for safe-havens.

Will the price rise further?

It can be presumed that the price of gold will increase even more in the near future – the growing fear of inflation, the overheating of the economy and the resulting desire to hedge are the main arguments in support of this. All the more so as there is no endless gold in the world and it cannot be generated at the touch of a button, so in the face of increasing demand, physical gold must always take into account the very limited supply.

With only about 50,000 tonnes of gold left in the earth’s crust, according to various forecasts, it is predicted that in 20 years’ time gold will no longer be available to gold traders. Thus, the gold that already exists needs to be re-used and competition will arise on the market for a resource that can be no longer found or created.

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