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Everyone who has an interesting investing in assets like gold then they know that the price fluctuates all the time. However, few people know what causes these fluctuations. There are people who
look at inflation as a driver of the gold price but there is so much more that they might not know. The price of gold is affected by a myriad of factors, not just inflation. These include demand, supply and investor behaviour.
These individual factors often overlap and affect each other. For instance, investors might make a decision to buy gold when the supply is sufficient. Investor behaviour can also affect the supply. When more people buy gold for investment purposes or any other reason, it increases the demand. But if the supply isn’t sufficient to meet market needs.
Let’s look a little more at the different factors that will affect the value of the gold your gold:
- Investor Behaviour
Gold is regarded as a hedge against unstable economic situations. Inflation is the most common reason why people turn to a more stable asset like gold. The gold price rarely has dramatic falls like stocks, many people can see the wisdom of investing in gold to protect their wealth when the economy isn’t doing so well.
Inflation on its own does not affect the price of gold that much however, when combined with other factors you can get the best returns on your investment. Investor behaviour also affects the value of gold. If more investors flock to gold, this might have an impact on its availability and value.
- Supply
Most of the gold that has ever been mined in the world still exists today. The gold might exist in a variety of forms and regardless of how old or what condition it is in, gold still maintains its price. Gold miners now have to dig deeper to get to usable gold. It is a tough industry where miners have to work long hours in tough conditions. Gold mining is expensive and the costs keep going up the deeper miners have to dig to get their gold. This affects the value of gold as.
Even though there is plenty of gold that has already been mined, most of it is already in someone else’s hands. According to some studies, the amount of gold that is already stockpiled above ground is believed to be 60 times more than what is mined out of the ground every year.
To keep up with demand, the industry not only relies on the mining process but also on the recycling of gold.
- Demand
Demand for more gold keeps growing. This is especially the case because of the growth in the number of industries that use gold. As demand grows, so does the value of gold. The demand for growth has been steadily growing since 1998, if the demand hadn’t increased, the price of gold would still be a couple of hundred dollars an ounce.
If the demand didn’t increase, there is a good chance gold prices would still be below $500 an ounce. People continue to buy gold because it holds its value better than most assets. Because of its rarity, this precious metal will continue to grow in value. The price of gold has decreased by a little over $200 despite the reduction in the amount of gold being mined, gold has continued to retain its value.
