Factors Affecting Gold Prices

Factors Affecting Gold Prices

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Better as a long term investment inflation, gold is now trading in the short term (non-physical) as well as forex or stock price indexes.

Like any commodity, the price of gold is determined by supply and demand in the market. In general, there are 4 factors that influence the fluctuations in the price of gold today, namely:

1. Value of US dollar exchange

In general, the correlation between the price of gold and the US dollar is negative. A strong USD exchange rate will tend to cause the price of gold to fall and vice versa if the dollar is weak, gold prices usually tend to rise.

This is due to the tendency to invest in USD when the country’s currency super powers ride. When there is uncertainty as an economy like during a global recession, the USD may weaken, and this causes gold investment to increase either in physical or non-physical forms.

2. Production World Gold

The main producers of gold in the world are South Africa, China, Australia, USA, Russia and Peru. World gold production will affect gold prices as a result of demand and supply.

In 2010, world gold production increased by 3%, or about 2,652 tonnes compared to the previous year, however, the actual production of world gold has tended to continue to decline since early 2000. One contributing factor is the increasing difficulty of gold mining.

Miners have to dig deeper to get to the gold reserves of the earth’s quality, and the risk of mining work increases. This led to an increase in production costs which eventually led to an increase in world gold prices.

3. Demand from jewelery industry in India, China and USA

According to a report by the world gold council and the London Bullion Market Association, the world’s gold jewelery industry accounts for around 54 percent of the world’s total gold demand, which reached 3,812 tons.

Most of the demand comes from the jewelry industry in India, China and the US in 2 months can reach 200 tons. 12% of gold demand comes from the medical and electronic device industries that use gold.

According to the theory of supply and demand, when the demand for gold jewelry and electronic products that use rose gold, the price of gold will also rise.

On the other hand, as happened in 2009 when the demand for gold jewelry fell by 32% due to the global financial crisis, the price of gold also fell.

4. Total Gold Reserves From The World Central Bank

In addition to paper money, the world’s central banks also have large reserves of gold. The World Gold Council report said that recently the world’s central banks are buying more gold than selling, this leads to world gold prices.

The world’s central banks are expanding their gold reserves, including the Fed, the Bundesbank (Germany) and the European Central Bank (ECB).

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