When buying gold bars or coins, the price is decisive, and it can go up or down depending on some key factors that are important to know when investing in precious metals. Which are? Next, we make a brief review of the most outstanding.
Interest Rate, Inflation, And Gold Price
As we said, some aspects affect the price of gold. One of them is the national interest rate. Unlike other investments, gold does not pay interest. When it rises, gold tends to fall as investors move to other assets whose performance is directly related to the interest rate. However, when there is a low-interest rate, which usually coincides with a period of economic uncertainty, gold tends to rise. Its use as a refuge value has a lot to do with it.
It is necessary to keep in mind that inflation and interest rates are related. When there is sustained growth in prices at a general level, interest rates are higher. Gold usually works best in situations of high inflation, or deflation, that is, when there is a sharp increase in financial stress.
Geopolitical Events And Economy
Geopolitical events also play a relevant role in this regard. When there is international tension, the price of the yellow precious metal normally tends to rise. In this case, investors seek to buy gold to have greater security at a time when confusion prevails.
Let’s not forget that politics and economics go hand in hand. If we take into account that gold is a haven asset, an economy in recession is the ideal environment for the price of gold to rise, while an expanding economy in good health offers more assets that can be much more interesting than gold. Prayed. We must think that the biggest movements of gold occur when there is a greater financial risk. If the world economy grows at a good pace and no crisis is looming, the price of gold will likely tend to decline.
Gold Supply And Demand
On the other hand, we cannot forget about supply and demand. As with any other commodity, gold production varies over time, as does the level of demand. We must know that there are four main areas of demand for gold: jewelry, technology, investment, and central banks.
And what about industrial production? It is yet another factor slightly driving the price of gold. Increased production leads to increased demand for gold, and vice versa.
Gold And American Dollar
Gold is valued in a standard way by measuring its price based on the number of dollars it takes to obtain one ounce of gold. The relationship between gold and the dollar is inverse. What does this mean? That when the dollar rises, gold falls, since one dollar buys more gold than before.
Gold also falls when bond yields rise, especially US Treasury bonds, which are considered the benchmark for measuring that yield.