Why Gold Prices Fluctuate?

This is the first post in the learner’s series. A simple question that we will answer through this post is, “Why do gold prices fluctuate?”.

While I am writing this article, the Gold price stands at $1238 per ounce (1 ounce = 28.35 grams). This fluctuate everyday, and the gold prices have gone significantly up in the past few months.

Like all other investments and commodities, gold prices also fluctuate everyday and are driven by the supply and demand. Some of the important factors affecting gold prices are listed below:

1. High inflation: When the economy exhibits high inflation, people prefer to invest in commodities, especially Gold. This demand is driven by the fact that in the times of high inflation, stock markets don’t do well and Gold becomes a safer option.

2. US Dollar: When the US dollar declines, the demand for gold increases. Most investors think that gold is a good hedge against declining dollar.

3. Low interest rates: If the real interest rates are low, then the returns on bonds, equities and real estate will not adequately compensate for the risk and inflation. Therefore, people will prefer to invest in gold.

Apart from these factors, the gold prices are also affected by human sentiment, the fear of the currency becoming worthless because of a national crisis, demand of jewelery, etc.

What do you think about factors affecting gold prices? Please leave a comment with your opinion.