8 Main Factors affecting Gold prices that investors need to know

Gold is one of the investment channels chosen by many people, both in Vietnam and around the world, as it is recognized as a precious metal with high value and can be stored for a long time. However, if you are looking to invest in gold, you should know which factors affect gold prices so that you can choose to buy or sell appropriately. Below are 8 main factors affecting gold prices that everyone should pay attention to in order to buy gold at the best price and sell it for the most profit.

What are the 8 main factors affecting gold prices?

Factor affecting gold prices #1: Supply and Demand

The supply and demand relationship is one of the important factors affecting gold prices. When supply is low, the demand for gold increases, causing prices to rise, while when supply increases while demand remains the same or decreases, gold prices often fall.

In Vietnam, gold prices often rise at the beginning or end of the year due to many couples organizing weddings, the demand for buying gold for wedding rings or giving gold to children and grandchildren on important occasions also causes gold prices to increase.

Factor affecting gold prices #2: Inflation

The increasing cost of goods and services is known as inflation. Economists believe that the value of fiat money is eroded as a result of this process. On the other hand, inflation at a controlled level indicates a healthy growing economy.

However, when the economy is in a high inflation period, gold prices usually rise as many investors believe that gold is an effective asset against inflation, not losing value like fiat money, which further drives up gold prices.

Factor affecting gold prices #3: Government Reserves

Governments of countries also buy gold for reserves and sell it when appropriate to adjust gold prices and ensure financial and economic stability when the local currency depreciates.

For example, when gold prices rise too high, governments can sell some gold to curb the rapid increase in gold prices, helping fiat money not lose too much value. Conversely, when gold prices are too low, the Government can buy gold for reserves, and this helps promote the increase in gold prices. Gold is also seen as a tool used by governments to control inflation.

Factor affecting gold prices #4: Strength of USD

Gold and the USD have an inverse relationship as people often compare the price of gold to USD. If the strength of the USD (DXY) increases, then gold prices will decrease and vice versa; when gold prices rise, it indicates the weakening of the USD.

You can refer to the article: What is the DXY Index? Impact of the USD Index on the market

Factor affecting gold prices #5: Central Bank Policies & Interest Rates

Whether Central Banks increase or decrease interest rates also has a significant impact on gold prices. For example, in March 2022, when the US Federal Reserve decided to increase interest rates to curb inflation, it caused gold prices to drop sharply.

When interest rates are high, many people choose to deposit money in banks instead of buying gold for investment, and when the demand for gold decreases, gold prices also drop. Conversely, when deposit interest rates decrease, people think of investing instead of saving, and gold, being a low-risk investment channel, is often chosen by many.

Factor affecting gold prices #6: Economic – Political Situations

Economic and political instability often causes gold prices to rise sharply. For example, the outbreak of the war between Russia and Ukraine in February 2022 caused gold prices to skyrocket to over 2000 USD/ounce.

Gold is often chosen by investors as a safe haven in bad times. When the situation starts to stabilize, gold prices usually begin to decrease.

Factor affecting gold prices #7: Gold Demand in India

In fact, India is one of the leading gold-consuming countries in the world, so when the demand for gold in India increases, it also causes gold prices to rise.

During the festival and wedding season in India, from October to December each year, gold prices often increase. Many speculators in gold also choose this time to trade and enjoy the price difference, further driving up gold prices.

Factor affecting gold prices #8: Gold Investment Funds

There are investment funds in the world that specialize in investing in gold, owning large amounts of gold and cash contributed by many different investors. Therefore, when these funds make any decision related to buying or selling gold, it affects gold prices.

In reality, there have been several instances where gold prices have suddenly dropped due to gold ETFs selling large amounts of gold to the market, and there have also been times when gold prices spiked due to these funds accumulating gold.

The largest gold ETFs in the world currently include:

• SPDR Gold Shares: currently managing assets equivalent to 58.1 billion USD

• iShares Gold Trust: currently managing assets equivalent to 28.9 billion USD

• VanEck Vectors Gold Miners ETF: currently managing assets equivalent to 13.6 billion USD

• VanEck Vectors Junior Gold Miners ETF: currently managing assets equivalent to 4.7 billion USD

• SPDR Gold MiniShares Trust: currently managing assets equivalent to 4.6 billion USD

Looking at the gold price trends over the past few decades, it’s evident that gold can always recover after a sharp decline and even reach new highs because it’s a rare metal, while central banks can print more money. Hence, gold is a trusted choice for many for investment and long-term preservation. However, investors in gold should also pay attention to the 8 factors affecting gold prices mentioned above to make suitable gold purchases or speculate effectively, avoiding long-term capital losses while waiting for gold prices to rise again. Wishing you success.