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The Impact of Economic Events on the Gold Market

Gold is one of the best and safest investments people can go for if they want to save money for retirement or diversify their portfolio. While gold prices are often more volatile than other precious metals, such as silver, gold still keeps its value over time.

Regardless of that, if you want to invest in this precious metal, you need to understand all the things that alter its price and why they do it. Naturally, you can’t, for example, prevent central banks from increasing their gold reserves, but knowing they change gold prices keeps you from investing in gold in a bad moment.

Do you want to learn the impact economic events have on the gold market and gold prices? This is the page for you! Read on to know everything you need to know about how the stock market moves around gold. 

Why Should I Invest in Gold?

Before learning the things that change gold prices, you may wonder what makes gold more mainstream than other currencies. The short answer is that its benefits allow people to feel confident in their investments and safer while saving money.

Gold is a hedge against inflation since its price increases when the dollar falls. Hence, even if inflationary expectations exceed what experts may have predicted in the past, the money you have in gold will remain the same. This gives you a safety net when unforeseeable events such as a global financial crisis happen.

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Historically, governments have used gold to boost their economic growth after going through a crisis that made them lose a lot of money. Apart from that, people building an investment portfolio need to diversify it to make sure they still have safe funds in case one of their assets falls down.

Although this depends on where you buy gold, liquidity is not often a problem for people who need to sell their gold to get money in an emergency, which makes it a decent option if you want to make your life easier in case you need to pay for an unexpected expense.

What Economic Events Affect the Gold Price?

Now that you know why you should invest in gold, these are the key factors that make gold prices change.

Market Volatility

All investors know how volatile the market can be around all kinds of assets, and gold is not an exception to that. Although the gold standard price tends to stay where it is for a time, it’s not safe from sudden market changes.

These changes often happen when the investment demand for gold increases or decreases, and that also affects the interest rates gold dealers have for the asset and the monetary policy they may adopt for their sales.

Dollar Value

Dollar Value

As mentioned before, precious metals and products from gold markets work as an excellent hedge against inflation. While you can use this as an advantage, it also tells you when the price of gold may go up or down.

If you see USD’s value decreasing, feel safe to keep your gold purchases since the gold price will either stay or increase. However, when currencies’ price increases, gold prices may do the opposite.

Mining Production

Regardless of all the economic research people make to understand the market and stock prices, the truth is the value of an asset comes from its purchasing power. Nonetheless, people can’t buy gold or precious metals if there are not enough on the market. 

Gold comes from mining production, which makes its stock depend on it. If miners fail to get enough gold, there will be less gold available on the market, which may make its price increase since it’s more challenging to get the asset.

When miners, on the other hand, get a lot of gold, dealers manage to get more of it, and since there’s more stock, buying it becomes more affordable for everyone.

On the contrary, people with gold ETFs on mining companies will only profit from their investment if everything goes well with the mining company they invested in.

Central Banks Reserves

The reserve of gold the government has affects the gold market directly. When we say government gold reserves, we are talking about the reserves a central bank may have, Fed funds futures, and gold from other government-related agencies.

Many people fail to include the Federal reserve in their economic analysis of the market, but these reserves can even change the interest rates gold dealers offer their clients.

Jewelry and Gold Demand

Gold’s performance on the market also depends on the jewelry demand worldwide since it’s one of the main uses of gold. The World Gold Council states that the United States is one of the countries with the highest jewelry demand among them all, so the price of gold there may stay stable for a time.

Naturally, since people keep buying jewelry, the gold demand for retail investors is always high.

What Does the World Gold Council Have to Say About the Matter?

The World Gold Council is always there to tell people if the price of gold suffers any risk or if they should keep investing in this precious metal. Even if gold began to decrease for any reason now, its price would stay up due to the high demand it has in countries such as India or the U.S.

This company has revealed some polls and studies that tell the demand for gold is even higher than in pre-pandemic times, so people looking forward to releasing themselves from inflationary pressures or getting gold bond yields should do it now.

Bottom Line

While gold is an excellent asset that works excellently for people who want to have a safety net in case they go through an emergency, that doesn’t mean you have to invest all your money in gold. One of the most important parts of building a strong portfolio is diversifying it.

If you do that, even if gold retreated to a lower point, you would be able to recover from it thanks to your other investments.