Every year, mines all over the world produce 3,200 tons of gold. Large consumers of gold belong to the retail industry, which includes jewelry, dental, and industrial applications. Gold also serves as an investment product, making the Central Bank a significant buyer of this metal. A considerable amount is recycled annually to keep up with the continuously growing demand. There are at most 150,000 tons of gold that still circulate across all sectors. It is mind-blowing to know that since the discovery of this precious metal; most of the gold mined even exists today.
These data are essential in making a gold price forecast. Knowledge of supply and demand is a significant force in the price of gold. While it is wise to monitor forecasts regularly, knowing the following factors that affect the price of gold will give meaning and substance to your projections.
The Federal Reserve’s financial policy decisions rely heavily on US economic data. These include manufacturing and wage data and GDP growth. This information affects gold prices. A strong US economy that manifests through low unemployment, GDP growth of more than 2%, and expansions in manufacturing, tend to lower gold prices. Strength in the economy means that the Federal Reserve can tighten its policy, which impacts the cost dynamics of gold.
On the other hand, a slow-performing economy with an unimpressive GDP growth may increase prices of gold due to a dovish Federal Reserve situation.
Throughout history, gold proved to be adequate protection against inflation. Countries and investors purchase gold as a measure to survive the increase in prices of goods. Studies show that one of the leading indicators of the gold price forecast is inflation.
The purchasing power of gold is consistently stronger than the dollar, as shown in its performance in the last forty years. A constant push and pull between inflation and interest rates affect the price of gold, as well.
The US dollar dominates the price of gold, and its movement in the world currency market has a strong influence on gold prices.
When the dollar falls, gold prices tend to increase since other currencies from around the world increase in value. Investors need to understand that gold and the US dollar have an inverse relationship. A growing economy results in a strong dollar, which pushes down the price of gold.
Political uncertainty and instability have the power to move the price of gold. The stock market’s performance significantly affects gold prices. It is a known fact that political turmoil affects the stock market and the economy. Situations in other countries and the changing of government leaders also contribute to the rising gold prices.
These uncertainties cannot be quantified or measured. An investor needs to be abreast of the political and economic situations to make a wise purchasing decision. When it comes to this factor, it is more of a mind game than a numbers game.
Closely monitoring the price forecast of gold must be matched with an in-depth study on the factors that affect its price. Knowledge in statistics and numbers are good. But a thorough look at the status of the economy and political climate, here and abroad, allows an investor to make the best financial decision.