Gold: Definition, History, Properties, Facts, & Uses
Let’s review the gold price and how it is calculated, which has been the subject of considerable market hoopla.
How gold prices is Determined?: In addition to being prized for jewelry and investments, gold is also employed in the production of some electrical and medical gadgets. Various factors determine gold price in a country.
Value of US Dollar: Because the metal is dollar-denominated, the price of gold typically has an inverse relationship with the value of the US dollar. In the absence of other factors, a stronger U.S. dollar tends to keep the price of gold lower and more under control, while a weaker U.S. dollar is likely to push the price of gold higher due to rising demand (because more gold can be purchased when the dollar is weaker).
As a result, many people consider gold to be an inflation hedge.
Geopolitical factors: Investor demand for gold tends to rise during periods of political unrest, geopolitical unrest, or general economic downturn because gold is seen as a reasonably safe investment by investors. Recently we have witnessed the fluctuation in gold price due to the war between Russia and Ukraine.
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Reason for fluctuation in Gold Price
1. Demand and supply
A rise in the price of yellow metal is generally associated with increased demand for gold. The previous ten years have seen China and India’s economies grow rapidly, which has increased demand and raised gold prices. As the nation’s economy has steadied in recent years, this demand has decreased.
2. Price of crude oil
Crude oil prices can be used as a reliable proxy for changes in gold prices as the two have such a strong direct link. Crude oil prices and gold prices typically fluctuate in lockstep over time. This is because gold is mined from the ground and is conventional and interchangeable, just like oil.
Countries with high gold demand
According to data from the most recent Thomson Reuters GFMS Gold Survey report, India and China remain the top two countries for purchasing gold jewelry.
1. India
India is the world’s top consumer of gold jewelry. India’s jewelry consumption increased 32% from the previous year.
2. China
When it comes to the consumption of gold jewelry worldwide, China is a close second. China’s demand for gold in jewelry decreased in 2019 once the pandemic began.
3. United States
In the first quarter of 2022, the United States ranked third in terms of gold consumption, trailing only China and India. American consumption has decreased due to rising gold prices.
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Gold prices affect Economy
Generally speaking, fluctuations in the value of the US dollar relative to other world currencies are reflected in variations in gold prices. When the dollar is strong, gold will cost more abroad in nations whose currencies have lost value, even if prices remain stable in dollar terms.
This usually reduces demand and puts pressure on gold prices, causing them to decline in terms of dollars.
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The converse is true when the value of the dollar declines, as falling prices in terms of foreign currencies make buying gold more appealing, increasing demand and driving gold prices up.