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Humanity has been enthralled with gold for thousands of years.
It has always been a highly prized and valuable metal due to its enticing colour and lustre, as well as its malleability, ductility, and resistance to corrosion.
Gold is a significant asset in the contemporary financial system.
A wide range of intricate and interconnected factors, from basic supply and demand dynamics to more esoteric factors like cultural affinity and geopolitical uncertainty, affect its price.
Understanding the factors influencing the gold market is essential for investors to make wise choices.
This article will examine the main factors that determine gold’s worth and explain how they affect its frequently fluctuating price.
1. Supply and demand
The fundamental factors of supply and demand are what ultimately determine the price of gold.
When gold is mined, it either rises or declines in scarcity, which affects its market value, depending on how much is bought and sold and how much is mined.
Because significant increases or declines in mine output do not occur frequently, supply is very constant. It takes many years to construct a mine, and significant new gold finds are uncommon.
Small production adjustments are made every year, but significant changes in the worldwide supply are rare.
On the other hand, demand for trade in gold might fluctuate more dramatically.
Demand originates from four main sources: making jewellery, investing (in bars, coins, and ETFs), purchasing from central banks, and technological and industrial uses.
The majority of demand, or consistently between 50% and 60% yearly, is for jewellery.
However, investment activity, influenced by macroeconomic and market considerations, frequently acts as a deciding element in the supply/demand dynamics.
Investors flock to gold when economic uncertainty increases, driving up demand. Interest declines and jewellery demand increases during more optimistic times.
2. Market sentiment
Similar to other assets, momentum and market emotion sometimes more so than underlying fundamentals drive short-term movements in prices for the trade in gold.
Investors may experience a feeling of “fear of missing out” when the price of gold is strongly rising. Media outlets in the mainstream provide more pieces regarding gold’s growth when prices rise quickly.
This attracts investors who had been sitting on their money and ignites a frenzy, driving prices further higher. On steep selloffs, the same inclination to chase trends also occurs in reverse.
When the media shifts to being negative, selling pressure increases as investors hurry to lock in profits or cut losses. Beyond gold, this phenomenon is also prevalent in other assets.
3. Geopolitical factors
Due to its role as a safe haven asset, gold is particularly vulnerable to geopolitical tensions, economic crises, and other unsettling situations that increase investor apprehension.
Any events that threaten the social or financial order—including wars, political unrest, trade disputes, currency devaluations, natural disasters—tend to increase demand for gold among investors seeking safety.
In the short term, they significantly bid up prices.
Even while every crisis is unique, history demonstrates that when significant geopolitical or economic crises occur, gold consistently benefits.
Investors naturally look for security and comfort in gold. The biggest short-term gains in gold can be attributed to this trend.
source:Exploring the Gold Market: Factors affecting prices and trends (mybroadband.co.za)
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