Free Essay: Factors That Affect Gold Value
Gold is an investment commodity that most people have often relied upon for great returns. However, the value of gold keeps shifting just like it happens with other products in the markets. There are various factors that can affect the value of gold at any given time. It is of great importance that those who have invested in gold or are thinking of pursuing the same course to keep these factors in check.
One of the factors that affect the value of gold is demand and supply of this commodity. Owing to the finite supply of gold and increasing demand on it, the price continues to enjoy a significant increase in value. Gold is used as an investment commodity as well as for industrial purposes. As the demand in this precious metal increases, the value also goes up and that can be reflected on its high prices.
The state of the global economy is also another factor that impacts the value of gold. In times when the economy is not doing so well, many investments offer limited returns and this pushes many investors to look for alternative ways of preserving their money. Many choose to invest in gold owing to the fact that it usually portrays better performance in times of economic crisis. When the economy is doing badly, the demand for gold increases and this further, shoots up its value.
Central bank reserves can also affect gold value. Central bank buys and sells gold in many occasions. According to the World Gold Council, many central banks are embarking on buying more of the precious metal compared to what they are selling. This is an occurrence that is quite rare and it means that more of the banks’ reserves are in the form of gold and not monetary currencies. As the central bank gold reserves increase, the value of the metal also takes a similar path.
The value of the US dollar is also another factor affecting gold value. Financial experts point out that when the US dollar is stronger; the value of gold tends to diminish. On the other hand, the value of gold can significantly be on the rise if the US dollar gets weaker. The reason is because many people tend to trade and invest in dollar if the currency is strong. However, they will look for commodities that can retain the value of their money in moments of uncertainty. It is mainly when the dollar is weakening that most investors will rush to acquire gold. This means higher demand that is translated into greater value for gold.
There are several other factors that can also affect the value of gold like production of the precious metal, increase in per capita income, trading and speculation, government policies among others. All these factors can determine the price at which gold is bought and sold. By keenly looking into these factors, investors are able to forecast the value of gold in the future.
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