Home Finance 6 Factors That Determine the Market Price of Gold – 2024 Guide

6 Factors That Determine the Market Price of Gold – 2024 Guide

by Nina Smith

Gold is one of the most precious metals and has a variety of applications in different industries. It finds application not only for making jewelry and investment purposes but also for manufacturing several medical and electrical devices.

Back in August 2024, the value of gold for every ounce was around $2,000. However, some 50 years ago, the cost was under $100. Do you know what the reason behind the price fluctuations of this precious metal is? Well, several factors contribute to these fluctuations and influence its price over time. Click here to know more about the market price of gold and how it is affected.

Factor #1: The Value Of The U.S Dollar

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The U.S dollar value largely dominates the price of this metal. The value is inversely proportional to the dollar of the United States.

Considering every other factor to be constant, with a rise in the U.S. dollar, this precious metal price decreases. On the contrary, when the U.S dollar’s value falls, the price of this metal increases. People tend to purchase more gold when the U.S dollar value is weaker. As a result, the price goes very high because of its increased demand.

Inflation is a condition when the price of everything rises, and with the price rise, the dollar’s integrity decreases considerably. That being said, this precious metal is always considered as a blockade against inflation.

Factor #2: Reserves Of The Central Banks

Central banks have reserves of hold and paper currencies. When banks modify the money reserves acquired by them into gold, the value of this metal increases. Several nations in the world have resources that primarily encompass gold.

A recent report reported that central banks worldwide are all buying gold as much as possible ever since the U.S. and Russia’s gold Standards topped the gold buyers’ list. Turkey comes second in the list Kazakhstan is in the third position. Summing it up, in 2018, the government purchased around 651 tonnes of gold.

Factor #3: Protection Of Wealth

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When the economy is uncertain at times of the economic recession, people consider investing in this metal more because of its reliable value. During rough times, it emerges as a safe play for investors all around. During such times, the return on everything else, including equities, bonds, real estate property, etc., falls, and people become more interested in investing in gold. This primarily increases the metal’s prices.

Gold is also considered a strong barrier that protects against several economic situations such as inflation of currency or depreciation. Economies also think of this metal as a valuable asset at times of political instability.

Factor #4: Production Of Gold

Gold mining countries worldwide include South Africa, China, Australia, Peru, the United States, etc. These are a few significant players that deal with mining this metal. Its production all around the world also affects the value of the metal. Again, if the supplier fails to meet the demand, then the price rises. The amount of this metal mined in 2010 was 2,500 tonnes, which surged to 3,260 tonnes in 2018.

Although there has been a significant rise in manufacturing for over ten years, it has not changed much since 2016. One of the primary reasons behind it was that the miners always mined the readily available metal, and now to produce gold, they need to dig deep and access quality reserves.

Several problems arise when diggers dig deep into mines. For instance, the environmental impact increases as they dig deep, and they are also affected by several health hazards. That said, the risks associated with digging deep. Thus miners can dig only a small amount of gold. As a result, the production costs increase that leads to an increase in the metal’s value.

Factor #5: Industrial Demand And The Demand For Jewelry Worldwide

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At least half of the demand for this metal is for the production of jewelry. Last year, the demand to make jewelry was approximately 4,400 tonnes. The United States, China, and India consume an immense amount of gold in volume to make jewelry.

Another 7.5% has industrial use and is also associated with technology. It is used to manufacture medical devices that include precision electronics and stents that incorporate units of GPS. Hence, the price is usually affected by a general theory of supply and demand. With the rise of demand for consumer goods such as electronics and jewelry increases, the value increases.

Factor #6: Demand For Investments

The demand for gold is also related to the exchange-traded funds that hold this metal and issue shares that are further used for trading, buying, and selling shares. The SPDR gold trust is one of the largest and is believed to have more than 1,040 tonnes of gold as of March 2024. Also, the amount of gold bought from various investment vehicles as of 2019 was about 1,271.7 tonnes. It represents more than 29% of the total demand for gold over the world.

The metal price has surged incredibly over the last 50 years, and there were many factors responsible for it. Like any other commodity, the gold price is affected due to the change in demand and the metal supply. However, this metal also retains an additional value. At times, its price moves in the opposite direction of the U.S dollar. Central banks and Government vaults encompass one of the primary sources of the demand for this metal.

Final Word

Gold is one of the world’s most revered metals, and almost all big occasions in the countries are incomplete without it. It is also useful in protecting oneself from the adverse effects of Inflation. In today’s market, the value of this metal is very high compared to what it was in the past. Its price will further increase when the demand increases. The flow of cash in the market increases with the decrease in its supply.