Gold rates can fluctuate due to several factors, including the supply and demand theory, which has an impact on the prices of gold, the behavior of investors is also the key to fluctuations of gold prices. When the supply of gold is low, and demand is high, the price will rise. Conversely, when the supply of gold is high, and demand is low, the price will fall.
Gold tends to respond inversely to interest rate moves. As interest rates rise, gold loses demand in favor of interest-bearing securities.
Gold and other precious metals have long been considered a smart way to fight inflation. Gold generally holds its value and preserves your purchasing power over the long haul, despite fluctuations in the dollar.
As such, gold prices can be affected by the basic theory of supply and demand. This means that as demand for consumer goods (like jewelry and electronics increases), the cost of gold can rise.
Gold is a part of the Indian way of life across socioeconomic classes. Gold is purchased at every celebration, occasion, and festivity. Traditionally, Indians prefer gold as a safe long-term investment and a means to create generational wealth. Gold investment is simple as it does not require any market expertise, documents or cumbersome processes. This makes gold a favorite product for safekeeping money and personal use.
The demand for gold increases during the wedding season when the gold purchase forms a large part of the wedding budget and other festivals, where buying gold is considered auspicious. During these times, the demand for gold becomes manifold, and so is the fluctuation in gold rates. The government imports gold heavily to meet the demand surge, and prices also rise.
Depending on market circumstances, gold may garner some support during economic and market uncertainty. At the same time, gold is a commodity that only has an intrinsic value, meaning it’s worth what the market says it’s worth.
It costs money to hold the yellow metal, with storage and insurance being among the costs of holding gold. Gold does not yield any interest income. Gold prices aren’t completely random or the result of herd behavior. Some forces affect the supply of gold in the wider market, and gold is a worldwide commodity market, like oil or coffee. the fact that the number of people who might want to buy it is constantly on the rise, jewelry and investment demand offer some clues.
Oil demand and supply also impact gold prices. When the global oil supply falls, it impacts all the markets and industries worldwide. When production decreases, it affects domestic production, consumption, and the economy as a whole. At such times, money flows into gold as a safe haven and demand for gold increases. Oil prices indirectly affect gold price fluctuations.
Gold sometimes moves opposite to the U.S. dollar because the metal is dollar-denominated, making it a hedge against inflation.
Supplies of gold are primarily driven by mining production.
Inflation is the phenomenon where money loses its value, marked by a widespread increase in the price of goods and services. At such times, investors look for safe source to invest their money. Gold acts as a hedge against inflation, and as a result, the demand for gold rises and prices move north.
The gold price movement in international markets also impacts the price of gold other countries. For instance, global government policies impact the demand for gold and cause price fluctuations.
Read more: Why Invest in Gold?