Free Essay: Factors Affecting Gold Value in USA
Over the years, gold has remained to be a valuable commodity that is traded in almost all countries across the world. USA is among some of the leading traders in gold. Just like it happens in other countries, the price or value of gold keeps changing based on quite a number of aspects.
The value of gold in USA may at times be similar or different to that in other countries. One of the factors that can affect the value is the rates of interest. During times when the rates of interest are high there is scarcity of capital due to a high demand for it. The result of this is that large premiums are often paid to people who are willing to lend out money. This leads to the conclusion that when the interest rates are high in USA, the value of gold decreases since few traders will be in need of the commodity.
Inflation is yet another factor affecting the price of gold ion USA. In fact, this has been regarded as the main factor. Gold is a commodity that does not practically have use on personal grounds or even with regards to business, instead, acts as a retainer of wealth and value. Thus, it would make sense to say that in an environment that is faced with inflation and value of money is on the low, many people will be looking for an option through which the value of their money can be retained. In such an instance, gold is usually the commodity that most people will go for. Thus, it would be true to say that the value of gold increases with the rate of inflation and vice versa.
The amount of money that the US owes to other nations in the form of treasury bills usually impacts the dollar, thus affecting the value of gold too. In the event that the US debts pile up and become unmanageable, many countries will want to own less of the dollar since many will view it as a risk that may never be redeemed soon. For instance, if the all the creditors decide to invest the money owed by the US in the form of real goods, prices will indefinitely shoot up. A similar experience will be encountered and the value of gold too will assume an upward trend.
The value of the United States’ dollar is yet another factor affecting the value of gold. The value of the US dollar is inversely related to the price of gold. This means that when the dollar is strong, the value of gold goes down and is relatively under control. The reason for this is because most people only prefer to make investments in the form of gold when the economy is doing well and the dollar is weak. The investments are usually in the form of gold coins or gold funds.
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Reference:
http://goldresource.net/factors-affecting-the-gold-price/
http://www.investopedia.com/financial-edge/0311/what-drives-the-price-of-gold.aspx