How The Value Of Gold Works

If you have been looking at the price of gold over the last year, you will have noticed that it has increased in value significantly. With the uncertainty of the global pandemic affecting stocks and shares, many investors have turned to gold, which has seen its value rise. If you have ever wondered what drives the price of gold up and down, below is a summary that can help you get to grips with the concept and help you decide if you are going to purchase gold as an investment.

The Changing Price Of Gold

Even with the global pandemic raging, the price of gold has gone up, and with fuel prices being so low, the prospect of mining gold has become very attractive to many people. Despite the pandemic, more people are looking to cash in on the price of gold and try mining for the first time, which is helping to increase production. Although these small independent miners will measure the gold, they mine in ounces rather than tonnes, and it is still helping to fuel the gold mining machine, which has become so popular.

The Value Of The US Dollar

The price of gold is intrinsically linked to the value of the US dollar, and this plays a part in how much you must pay when purchasing gold. Whether you are buying your gold from the local pawn shop or a reputable dealer where investors buy gold in Brisbane and in other locations around the world, the value of the gold remains the same and is converted into local currencies using the US dollar as a benchmark. As the dollar’s value rises, so does the value of the gold. Likewise, when the value drops of the dollar, so does the value of gold.

Supply & Demand

The supply and demand of gold will also have a bearing on its value. As demand increases for this shiny yellow metal, the value of the gold also increases. When you see the price of gold dropping, it is often down to people and countries liquidising their assets and selling off their gold in large quantities. The sudden influx of gold to the market can drive down the price as supply outstrips demand and is often when other investors will also cash in on their investment. However, when you are investing in gold for your portfolio, you should consider it a long term investment and not look at the spot price too often, in case it tempts you to cash in as well.

A Safer Investment

You will also often see the value of gold increasing when the stock market is not doing as well, as people look for safer investments and a hedge against inflation. It comes back to supply and demand as people turn away from other investment vehicles and look to purchase gold, which is considered a safer investment, although often not as profitable.

Investing in gold can be an excellent idea for your portfolio and increase its value over the long term. However, if you have never invested in gold before, there are many factors to consider, and it will always be a good idea to get to learn as much as you can about this precious metal first.