The cost of gold can reveal some information regarding the economy. There are a few reasons a person may buy gold as a commodity investor. Gold was first utilized as coins far back as 643 B.C. Many countries throughout time as use gold as a gold standard. The gold standard was the basis that provides paper money and coins its’ value. The United States started using the gold standard in 1900, but they no longer utilized the standard to provide value for the paper money and coins. United States stop using the gold standard in the 1970s. Gold is still a very interesting commodity. It is almost near mystery to know exactly what entity sets the cost of gold. Pricing like any commodity is center around the laws of supply and demand. There are a few factors that influence the cost of gold.
Cost Influencers for the Cost of Gold
Knowing what is a Gold Price per Ounce has many cost influencers. Monetary policy set by the Federal Reserve affects the cost of gold. Federal Reserve can change interest rates. Interest rates influence gold pricing. When interest rates increase, the price of gold will be lower, and vice versa when interest rates decrease. The Federal Reserve will also provide other information about the economy that would affect the cost of gold. There other influencers to the cost of gold are:
• Supply and demand
• Currency movements
• Inflation
Supply and demand affect most anything including the cost of gold. China is the biggest miners of gold in the world. Most of the gold produced around the world is to meet the demand for jewelry. Gold is used in other industries but the majority of its’ use is in the jewelry industry. When there is an increasing demand for jewelry and other consumer goods that utilize gold, the pricing of gold increases. Once the demand for consumer goods decreases, the pricing of gold will decrease. Currency movements such as the United States’ dollar has an effect on the cost of gold. The decreased value of a dollar will cause the cost of gold to increase, and the pricing of gold will decrease when the dollar value increases. Inflation is somewhat trickier influencer out of several cost influencers of gold. Inflation and gold pricing do not have good correlation. Under normal circumstances, rising inflation will increase the cost of gold. There have been cases it not always true an increase in gold pricing occurs when inflation increases.
Reasons People May Buy Gold
Many investors will buy gold because it considered a preserver of wealth. The price paid for gold today sometimes translate to have the same buying power in the future. Paper money will not have the same value because inflation may decrease buying power over time. Investors buy gold to hedge against the value of the dollar and inflation. Gold acts as safe haven when economies and world governments are going through uncertainty. Gold may help them rebuild after a war. Many people buy jewelry. They like the allure of jewelry. Some gold is found in electronics that are purchased by consumers.
