Gold is one of the most valued precious metals on earth. Ever since its discovery a long time ago, it has been widely linked to wealth and success. In modern times, it is mainly used as an investment. It is preferred by many people as an investment due to the stability (and appreciation) of its price over the years. The price may fluctuate a bit, but overall, it is very stable and often profitable.
The price stability is also necessitated by the fact that gold is a non-renewable source. This makes gold more precious and valuable. Gold can be used for many purposes. In a way, this gives investors a sense of safety and security. The security stems from knowing that gold will not easily depreciate in value.
It is now common knowledge that gold is considered to be one of the safest assets to invest in. It has managed to maintain this honor for many centuries. In this article, we take a look at why gold is a favorite of investors. We will take a look at its price fluctuations in the past and what has caused them. Furthermore, we will also look at what may influence the price of gold in the future.
Gold Has Been A Currency
We will start by looking at why Gold is perceived to be more valuable than other precious metals. For one, gold can be used as a currency. In fact, it has been used as a currency many times before. For another, gold is durable and is resistant to corrosion. You do not have to worry about corrosion or rust when you have gold. More importantly, gold is scarce, which gives it much of its value. Silver shares many of these characteristics as well.
Gold Prices Over The Years
The price of gold over the last 10 years shows that gold has been a good investment option. Gold prices have risen exponentially from 2009 to 2011. It has been on a decline ever since, but has shown signs of recovery over the last 2 years.
Image source: https://www.goldline.com
The recent decline in gold prices can be unsettling for many people. You may even wonder if the prices are going to pick up or if they will go even lower. Let’s take a look at some of the reasons why gold prices have declined over the years (and keep in mind that the prices of stocks and commodities are always moving up and down, a major key is proper analysis).
Strong US Dollar
This may come as a surprise to many of you but the price of gold is valued against the US dollar ($). Gold prices usually go down whenever the US dollar strengthens. This prompts investors to adjust the price of gold in order to match up the strengthening American currency. In short, gold and the US dollar have an inverse relationship. If one goes up, the other one tends to go down.
Thriving Economy And Higher Interest Rates
Gold does not respond well to a thriving economy. A thriving economy generally leads to higher interest rates. Investors will then have an increased chance of earning a higher return on their investments in stocks and non-yield assets. The low demand will decrease the gold price.
Geopolitical stability plays a crucial role in determining the price of gold. The prices of gold tend to drop when there are no political tensions. War tensions between countries and zones raise the value of gold. This is because gold is the default commodity to hedge one’s investments in crisis situations. It has been labeled a crisis commodity.
The Future Of Gold
The future prices of gold depend on a large number of factors. Some are obvious while some are not crystal clear. However, it still remains important that you become aware of these factors.
Gold is an infinite resource that has to be mined. In time, some of the mines’ gold deposits will be too low or too deep to be mined profitably. This forces companies to shut down some of the mines and open new ones. This is a very expensive process. Think of all the costs associated with setting up a new mining operation. This forces mining companies to increase the price of gold so that they can cover their expenses and make a profit as well.
Anything of value is expected to fetch a higher price on the markets. The increased use of gold in the manufacture of jewelry and other electronics and health products can significantly increase the price of gold.
Governments’ And Central Banks’ Actions
Some of the world’s major governments and central banks are known for storing fiat money and gold. The price of gold can be easily affected if these mega-institutions start to buy and stockpile gold. This action increases the fiat money in circulation while reducing the available gold on the market. The scarcity of gold created by central banks and governments can eventually help the gold price to increase.
Increased Supply Of Fiat Currency
Central banks can sometimes devise a strategy to put more money in the hands of other financial institutions. This will encourage the financial institutions to lend more money to the people at lower interest rates. The amount of money circulating in an economy will significantly increase. The lower interest rates are unattractive to investors. In the long end, they will choose to buy gold as a hedge in case the economy lapses. This increased demand is coupled with an increase in gold prices.
This is one of the major reasons that promotes the price increase of gold. Inflation will result in investors losing their trust in fiat currency. This prompts them to buy gold as a way of safeguarding their wealth.
Supply And Demand
Supply and demand is a simple rule that affects the prices of the majority of commodity and asset prices around the world. The demand for gold can increase due to a number of factors and the majority of them have been listed above. If this happens, its prices will significantly go up until the situation eases.
Gold Is A “Store Of Value”
Looking at price charts for gold over a long period of time shows that gold always has a way of regaining its value and high price. This is mostly due to the unpredictable times that we live in. Gold is also a traditional precious metal that people and investors have relied upon in securing their wealth for centuries. The price of gold will very likely go up in the future. To learn more about gold and how you can more easily invest in it in this digital age, visit our main website DinarDirham.com and learn more about our digital gold products. One of our main products is the DinarCoin, which is pegged to the worldwide gold spot price. Each digital token is stored on the Ethereum blockchain, and is equivalent to 4.25 grams of 999.9% pure gold.