The Eight Major Factors Influencing Gold


A currency's purchasing power is based on the price index. When prices are stable, the purchasing power is too. However, high inflation weakens a currency's purchasing power and attractiveness.

The Eight Major Factors Influencing Gold Price Trends

1. The Trend of the Dollar

Although the dollar is not as stable as gold, its liquidity is much better. Therefore, the dollar is considered the first class of money, and gold the second. When international politics are tense and uncertain, people buy gold in anticipation of a price increase. Simply put, when the dollar is strong, gold is weak; when gold is strong, the dollar is weak. Gold, though not a legal tender, always retains its value and does not depreciate into worthless metal. If the dollar trends strongly, there are greater opportunities for investing in it and appreciating its value, naturally attracting people towards the dollar. Conversely, when the dollar weakens in the foreign exchange market, the price of gold strengthens.

2. Wars and Political Turmoil

During periods of war and political unrest, economic development faces significant restrictions. Any local currency may depreciate due to inflation. This is when gold's importance is fully realized. Because of its universally recognized properties as an internationally accepted medium of exchange, people turn their focus to gold during such times. The rush to buy gold inevitably causes its price to rise.

3. Global Financial Crisis

When the financial systems of Western powerhouses like the United States become unstable, global capital flows towards gold, increasing its demand and price. Gold serves as a safe haven for funds during these times. Only when the financial system is stable do investors lose confidence in gold, selling it off and causing its price to fall.

4. Inflation

We know that the purchasing power of a country's currency is determined based on the price index. When a country's prices are stable, its currency's purchasing power is more stable. Conversely, the higher the inflation rate, the weaker the currency's purchasing power, making it less attractive. If the price indices in the United States and major regions worldwide remain stable, holding cash will not depreciate, and the interest income would naturally be the preferred choice for investors. On the contrary, if inflation is rampant, holding cash offers no guarantee, and the interest earned cannot keep up with the skyrocketing prices. People then opt for gold, as its theoretical price rises with inflation. The greater the inflation in Western countries, the greater the demand for gold as a hedge, and the higher the world gold price. Among these, the inflation rate in the United States has the most significant impact on gold's fluctuations. However, in smaller countries like Chile and Uruguay, where annual inflation can reach up to 400 times, it has no effect on gold prices.

5. Oil Prices

Gold is an inflation hedge and is closely linked to U.S. inflation figures. An increase in oil prices means inflation is likely to follow, which in turn will lead to a rise in gold prices.

6. National Interest Rates

Investing in gold does not yield interest, and any profit from such investment depends entirely on price appreciation. When interest rates are low, investing in gold has certain benefits; however, when interest rates rise, the allure of earning interest becomes more tempting, and the investment value of non-interest-bearing gold decreases. Since the opportunity cost of investing in gold becomes significant, it might be more stable and reliable to place money in banks to earn interest. Interest rates and gold have a close relationship, especially when U.S. interest rates rise, as the dollar is absorbed in large amounts, inevitably impacting gold prices negatively.

7. Economic Conditions

In times of economic prosperity, people without worries are more inclined to invest, thereby increasing their capacity to buy gold for preservation of value or decoration, which in turn supports gold prices. Conversely, in times of economic depression, when people struggle even for basic necessities like food and clothing, interest in investing in gold diminishes, causing gold prices to fall. Economic conditions also play a role in the fluctuations of gold prices.

8. Supply and Demand for Gold

Gold prices are based on the principle of supply and demand. If gold production increases significantly, prices may drop. However, if factors such as prolonged miners' strikes halt production, gold prices may increase due to demand exceeding supply. Moreover, the application of new gold mining technologies and the discovery of new mines tend to increase gold supply, which naturally would cause gold prices to fall.


Foreign Exchange Channel Business Manager

Email: xunn131416@163.com

Phone: 18410941413

Risk Warning and Disclaimer

The market carries risks, and investment should be cautious. This article does not constitute personal investment advice and has not taken into account individual users' specific investment goals, financial situations, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article are suitable for their particular circumstances. Investing based on this is at one's own responsibility.

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