Why is Gold Going Up in Price?
Investing in gold is one of the oldest and most popular ways that human civilization has chose to invest over the centuries. Gold is a commodity but throughout history it's often been used as a form of currency as well. Gold prices fluctuate regularly every year and even every minute of the day. The price of gold can go both down and up at any time, for a few seconds, a few minutes, or sometimes as long as many years. Both of these fluctuations of down or up can make or break a person, depending on how they chose to invest. So one of the first questions a person who is new to investing may ask is "Why is gold going up in price?" It's a good question, but there's many different factors involved that may not be aware of. So I'll cover a few of the most common reasons and I'll explain everything in layman's terms so it's easy for anyone to understand.
When it comes to gold, demand is probably the single most common reason why gold prices tend to go up or increase. There is only so much gold on earth, both above ground and below ground (unmined). But the amount of gold that is above ground and already mined is way more than the small amount that is unearthed each year. The average amount that is discovered each year and actually mined and produced is about 2,500 tonnes (also known as metric tons). But the overall amount of gold that has already been mined and that is above ground is around 167,500 tonnes as of 2012. Sometimes when you produce more of something, this reduces the value of that something because then it's less rare. But with gold the amount being produced every year is is too small of an amount to really change the overall cost of gold and pricing that people go by, since it's really not that big of an impact compared to the amount of gold already available above ground and in circulation around the world. So demand seems to affect things a lot more than production, and most of the prices related to gold are more linked to this above ground gold rather than the below ground gold.
When there is high demand for gold, prices tend to go up because everybody wants it and is buying it, so some people are willing to pay a little more for it and the overall price is often influenced by this. As for why there is a demand, well there's many different reasons for that. Sometimes the demand may rise during war, or during global uncertainty or financial problems in a particular country or worldwide. For example, many people may feel that their banks may not be too secure during a war or during times when a country is having serious financial problems or a recession or depression. Because of this, they don't trust putting their money into their banks and may choose to buy gold with their money instead, since gold often goes up in value during times like these and because gold can be sold anywhere around the world and will never completely lose it's value even if it may decrease in value every now and then. In other words, it's more of a sure thing than majority of other investments or places to invest or keep money.
There is also a demand for gold when it comes to it's many uses, such as jewelry and industrial uses. Gold is used in many different kinds of jewelry as well as different types of industries. I'm sure you've seen gold plated watches or 14k gold necklaces. But what about gold furnishings in office buildings or decorations made of gold on ceilings and walls? The plating in many electronics is also made of gold, and because of this many people have tried to start businesses by recycling old computers and harvesting the gold from them, but this is not likely to be lucrative because of the small amount of gold that is usually used in computers compared to the amount of time and work it takes to harvest it out. Gold is also used in the medical industry and is very common in dentistry as well. So as these industries boom or suddenly start growing, their demand for gold will also grow and then gold will often go up in price.
In addition to all the different types of demand that relate to gold that I've already covered, another form of demand is probably the most obvious, and that's to make money from investing in it. This is also known as speculation, because people will buy gold even when it's at low prices when they speculate that it could rise in the future and increase in value. Also, remember how I mentioned that people may invest in gold when they don't trust their banks? Well another reason they may avoid banks is because of low interest rates. When interest rates rise, gold is often affected because people see the banks as better places to put their money than in gold. When interest rates drop people may feel that gold is a better investment for their money than putting it in an account where it won't earn much interest, so gold prices often rise when the interest rates drop as well. But this isn't a general rule of thumb as the exact opposite has happened in both scenarios a few times over the past few decades.
So there you have it, gold prices can rise for so many different reasons but majority of them, as you can see, are linked to demand. So if you're deciding to invest in gold and are new to the commodities trading world, then you may want to take some of these reasons into account so you can better predict where gold prices may lead in the near future. Majority of investors who are successful in any type of market, whether it be stocks, forex, commodities, or real estate, are successful because they take things like future demand into consideration before choosing what to invest in.
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