How To Calculate Cost Of Goods Available For Sale Formula Investing in Gold – Factors That Influence the Price of Gold

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Investing in Gold – Factors That Influence the Price of Gold

Before making an investment in the precious metal, understanding the factors that affect the price of gold is crucial. It is equally important to be aware of the key differences between supply and demand for gold compared to other investments such as commodities, stocks and bonds.

Another factor to keep in mind; gold is not the only precious metal to consider when making this type of investment. Silver, platinum, and palladium are also in high demand as investment vehicles that offer similar fundamentals to gold, but each has its own unique characteristics as an investment.

Factors affecting the price of gold metal

The value of a gold coin or precious metal lies in its precious metal content. Although gold is beautiful to look at in almost any form, its aesthetic appearance is not usually considered for investment purposes. Therefore, the value of gold is directly related to the market price of gold and fluctuates with market movements, just like stocks, bonds and commodities.

How to measure the price of gold

When quoting the price of gold, most business reports show the price per troy ounce in US dollars. If you’re following the market from outside the US, be sure to convert this price to your home currency and know that one troy ounce equals approximately 31.1 grams.

Also note that the price quoted in the market is always for pure gold. Most jewelry is much less than pure (typically 40-75%), but bullion and coins are usually quite high purity (over 90%).

By knowing the mechanics of the physical price of gold, you can begin to examine the market forces that cause large daily price swings. They are listed according to their impact on the daily price of gold.

1. Macroeconomic data

Arguably the most influential gauge of the gold price is the daily economic data coming from the world markets. Gold has historically always been a “safe” type of investment. Like real estate and cash, it’s a place to put your money when things aren’t looking up elsewhere. When money is pulled out of the stock market, it usually moves toward these types of investments, but in 2008, when the stock and real estate markets experienced a simultaneous crash, gold seemed like the only safe bet and in turn began its dramatic gains. in the price.

2. Inflationary pressure

Inflation is the theory that over time the value of money always falls when prices rise. While the median house price isn’t $40,000 like it was in 1975, the number of gold bars it took to buy the same house is fairly consistent: $40,000 worth of gold in 1975 would be worth just over $310,000 today.

This means that regardless of the gold market, it is always better in the long run than holding cash without earning interest on it. Although gold does not pay interest, its price generally tracks the rate of inflation or better.

3. Supply and demand of gold

Supply and demand is the main factor in shaping the market price of most goods. Although the price of gold is much more complicated than this basic formula, these factors still play a role.

The supply of gold is highly dependent on its price because the cost of mining it has become so high. It used to be a fairly simple prospecting and mining for gold, with many stories of gold rushes hitting Mother Lode. Today, mining large quantities of gold is much more difficult and requires expensive equipment and technology. Also, since gold doesn’t really “go away” or wear out like other commodities, there will always be a large supply of gold regardless of supply. Thus, unlike most other commodities, the supply of gold is likely to be more responsive to its price than directly affected by it.

The demand side is just as consistent. As the price of gold falls, its demand for jewelry use increases (since jewelry is a discretionary expense item), but investment demand for gold generally falls because prices are in a downward trend. Of course, the opposite is true when prices rise: demand for gold for jewelry falls and investment demand increases.

The future of gold prices

Look at the economy and inflation rate as the most likely indicators of gold prices going forward. Another major recession or a spike in inflation could cause gold to rise again. Similarly, if the global economy improves and inflation remains under control, the price of gold is likely to remain fairly stagnant and may even fall slightly.

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