Tuesday, March 27, 2012

Going for Gold: How the price fluctuates worldwide

The current price of gold varies from one geographical region to another. Gold is one of the most precious elements found in the earth’s crust. If you are looking for some savvy investments in the future it pays to understand what can lead to the increase and decrease in the price of this commodity.

You have to dig deeper and remove tons of dirt to get an ounce of gold. Gold marks purity, piousness and prosperity of the owner and is always welcome in most households worldwide. Gold is also at the heart of our economy and the price of it can determine what we pay for everything from online home insurance to petrol.

However, there are numerous dominant and sub-dominant factors which determine the market price of gold. Some of the important factors which influence the price of gold are as follows:

  • Supply and demand: Like other commodities, the price of gold is heavily influenced by the supply and demand factor. The greater the demand, the higher will be the price as the gold reserves are limited and the supply side must cater to the demands.

  • Global economic situation: The better the global economic situation, the higher will be the demand. Almost 80 percent of total supply of gold is being used by the jewellery industry, but this has been hit by the recession. A better economic situation may lead to high inflation. Hence, most of the investors use gold as a hedging tool against inflation. With gold, investors get perfect protection against the decline in purchasing power.

  • International price monitoring: The global price of gold is also influenced by some of the international organizations such as IMF, World Bank and others. Under the Washington Agreement on Gold, Central Banks may only sell up to 400 tons a year, which would restrict the amount of gold in the open market.

  • Currency exchange rate: Weaker US dollar exchange rate always encourages hike in the global price of gold per ounce. This is so because investors prefer to sell the dollar and buy gold such that the bought gold will protect their net assets value.

Thus the price of gold keeps on fluctuating with time and different economic situations. Investment in purchasing gold has become a lucrative proposition for large investors as this promises the much needed safety security and good returns.

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