Gold prices can fluctuate rather fast, or it seems that way at the very least, especially to someone who doesn’t quite know how to keep up with gold prices. Realistically, it is a well-known fact that gold and silver are two of the most complex assets to price. Unlike currencies, commodities, and stocks, physical gold cannot be priced using the production-demand-inventory formula, which makes the procedure all the more challenging.
Although within Australia, which also happens to be the third-largest gold producer in the world, the currency is influenced directly by gold prices. If the gold prices increase or decrease, the Australian dollar moves accordingly. However, the price of gold can be affected by several factors, although the legitimate reason is not clearly known. Here are 3 of the many factors that affect the price of gold:
1. Supply & Demand
Supply and demand is the simplest way to define the actual process and reasoning behind price changes for any good or service. Gold is no different in this regard. More demand and less supply means that the price of the commodity will be higher, and vice versa. Anything that is oversupplied will see a drop in price rates. Gold, for one, is never oversupplied. If anything, it was undersupplied and only saw 1% in terms of supply growth in the first of half of 2016. This is one of the main reasons why gold prices have risen higher in the year 2017.
2. Changes in Currency
Any changes that come about in currencies can also have a huge impact on the price of gold all over the world. The U.S. currency, specifically, is always responsible or capable of altering gold prices around the world due to the fact that the price of gold is greatly dominated by the dollar. It is the same for Australian dollars. Gold prices in Australia can rise above or fall at any time the currency fluctuates, and since the currencies of Australia and U.S. are correlated, their prices might be the same often times.
3. Monetary Policy
This is probably the main factor that makes such a huge impact on the price of gold. Opportunity cost itself makes a huge difference in how the price of gold is evaluated, as do the interest rates. A lot of people may choose to invest in gold rather than interest-based assets, and the benefit of the former is a lot more in comparison. However, this is one of the major factors that greatly influence the changes and the determination of the price of gold, but there are plenty of other factors too.
The price of gold can never be assumed or judged in advance because the prices are based on not just these, but plenty of other factors as well. Gold prices in Australia may be affected by currency more than anything, but gold is also high in demand within the continent. In other places such as Europe, the price of gold might be a lot more different.