Gold has always been on the top of the list when it comes to popularity and fondness. Many societies and cultures view gold as the supreme wealth storing method for themselves and passing it down to the next generation. Owing to its supremacy, this yellow metal stands above various investment options in the market. Gold is not seen as mere investment, but a possession which holds high cultural importance which no other investment vehicle does.
Therefore everybody keeps an eye on the prices of this precious metal which always keep fluctuating. Latest trends of gold rate show sudden rise and fall, although it has successfully maintained a rising graph of appreciation in its overall value over the years. Here are some factors responsible for price changes of gold – locally, nationally and internationally:-
Taxes, Duties and Transportation Cost :
These factors directly play significant role in determining prices of gold locally. Gold mines are scarce in many countries due to which it is imported from gold-rich countries. Tax rates and duties imposed on gold import vary country to country. Big importers of gold like India keep tax rates and import duties high to discourage gold import so that import costs could be brought down, the reason being high price in domestic market.
Gold Reserves with the Central Bank:
A big chunk of gold above ground [excluding the jewellery] has to be kept with the Central Bank of the nations. Most countries of Europe, Asia along with the USA keep high reserves of gold which is the currency circulation mechanism.
Central Banks are seldom seen interfering in gold market, e.g. they buy or sell gold to regulate its reserves. This leads to fluctuation in the gold prices in the economy.
Inverse Relationship with Dollar:
Gold value is denoted in terms of USDs in the international market. Both have a negative correlation. Therefore even a little strengthening of dollar makes gold weaker and vice versa. This inverse relationship of gold and USD makes gold prices much volatile.
Demand and Supply relation:
Most of the gold produced worldwide is utilized in making jewellery and ornaments. Countries with the highest population i.e. China, India and United States are the major gold consumers. The economic cycles, festivity and investment trends of these nations directly affect gold demand, which ultimately influences its prices globally. Now earth has to be dug deeper to mine gold as most of the gold which was ‘easily available’ has already been mined. Thus the production cost has gone up and resultantly the precious metal’s prices has risen. Plus, its production is reducing or is at a constant pace since years; which has lowered its production but the demand graph is still going higher and higher.