Gold has always held a special place in human history. From ancient civilisations to modern economies, this precious metal has been a symbol of wealth, power, and beauty. Today, gold continues to captivate investors, governments, and consumers alike.
However, you’ve probably noticed that its price can be quite volatile. This isn’t just a once-in-a-blue-moon occurrence; prices can fluctuate daily due to a wide range of economic, geopolitical, and market-driven factors. Understanding these shifts is crucial, especially if you’re considering gold as part of your investment strategy.
In this article, we’ll delve into why this happens by exploring five key reasons for gold price fluctuations. Plus, we’ll share some practical tips for investing in gold, helping you mitigate risks and maximise your returns with greater confidence.
An overview of the price of gold over time
Gold, whether in the form of bullion or coins, has been valued since ancient times, but its role and the factors influencing its price have evolved. In the past century, the price of gold over time has seen significant highs and lows. For instance, gold prices skyrocketed due to high inflation and oil prices, peaking at over $850 per ounce by 1980. The price remained relatively stable through the 1980s and 1990s, before another major surge during the 2008 financial crisis, when gold reached an all-time high of over $1,900 per ounce in 2011.
In recent years, gold has continued to be a safe haven for investors, especially during times of economic uncertainty. The COVID-19 pandemic, for example, saw gold prices hitting a historic high of $2,067.15 per ounce throughout the first three quatres of 2020. Understanding the reasons behind these fluctuations can provide insight into future trends and help investors make informed decisions on the best time to buy gold.
How is the price of gold calculated?
The price of gold is determined by a combination of factors and is traded on various financial markets, the most significant being the London Bullion Market Association (LBMA), where the price is fixed twice daily. This “London Fix” reflects the supply and demand dynamics of major financial institutions.
Additionally, gold prices are influenced by futures contracts traded on exchanges like the New York Mercantile Exchange (NYMEX) and the Tokyo Commodity Exchange (TOCOM). These contracts represent agreements to buy or sell gold at a future date and price, and they play a crucial role in setting current live prices.
Why does the price of gold fluctuate?
Now, let’s take a closer look at the five key factors that drive fluctuations in gold prices. From shifts in supply and demand to inflation, geopolitical tensions, and even cultural events where gold plays a central role, a wide range of influences shape the market.
While many of these forces are beyond our control, understanding them can give you a strategic edge, helping you recognise opportunities, time your decisions wisely, and protect your investment.
1. Supply and demand
One of the most fundamental principles of economics is supply and demand, and gold is no exception. The supply of gold comes from mining and recycling, while demand stems from various sectors including jewellery, technology, manufacturing, medicine and investment.
When demand for gold increases—whether due to rising consumer interest (e.g. gold coins purchased during China’s Lunar New Year) or increased industrial use (e.g. gold’s application in electronics)—prices tend to rise. On the other hand, if supply outpaces demand, prices can fall. The mining process itself is lengthy and expensive, with regulatory hurdles such as environmental permits and land access slowing down supply responses, which in turn lead to price fluctuations.
2. Economic and political uncertainty
As mentioned earlier, gold is a “safe haven” asset, meaning that during times of economic or political uncertainty, investors rely on it as a secure investment. This is because gold tends to retain its worth even when currencies (U.S. Dollar) weaken or financial markets become volatile. Events such as wars, political unrest, and economic crises can drive up the price of gold, as people seek to protect their wealth.
For example, geopolitical tensions such as the ongoing trade disputes between the U.S. and China, or the war in Ukraine, can lead to increased gold prices, making investors wary of riskier assets like stocks or bonds. Likewise, a looming recession or sharp fluctuations in interest rates can fuel demand for gold too.
3. Inflation and interest rates
Inflation and interest rates are closely linked to fluctuations in the price of gold. Gold is widely regarded as a reliable hedge against inflation because as inflation rises, the value of fiat currencies declines, reducing the purchasing power of the money you hold.
Interest rates also play a critical role. Historically, when interest rates are low, gold becomes more attractive to investors because it doesn’t generate interest, making the opportunity cost of holding it lower. However, when interest rates go up, investors often choose yield-producing assets instead of gold. This shift in preference reduces demand for gold, causing its price to drop.
4. Government gold reserves
Governments hold substantial gold reserves and their buying or selling activities can significantly impact gold prices. According to the 2024 Central Bank Gold Reserves (CBGR) survey, 29% of central bank respondents intend to increase their gold reserves in the next twelve months, which could drive up the price of gold.
For instance, in recent years, several central banks, particularly those in emerging markets like Russia, China, and India, have steadily increased their gold reserves. This strategy helps them diversify their foreign exchange holdings away from a heavy reliance on the U.S. dollar, with the aim of strengthening their financial stability and reducing exposure to currency fluctuations.
5. The jewellery market
The jewellery market is a major driver of gold demand worldwide. In countries like India and China, gold jewellery is not only a cultural staple but also a traditional form of investment. During key seasonal celebrations, such as weddings and festivals like Diwali or Lunar New Year, families often purchase gold as gifts, including necklaces, bangles, and coins, to give to loved ones, which can cause noticeable fluctuations in gold prices.
Gold investment is easy and hassle-free, making it a top choice for those seeking to preserve their wealth or use it for personal reasons. Consequently, in periods of economic prosperity, consumers generally have more disposable income and tend to invest more in luxury gold items such as watches, rings, and necklaces, further driving demand.
Tips for investing in gold when prices fluctuate
Clearly, investing in gold is a smart move for wealth preservation and diversification when conditions are uncertain. However, as previously highlighted, gold prices do fluctuate. The key to successful gold investment isn’t about perfect timing, but rather leveraging market movements over the long term to mitigate risks.
Here are a few strategies you can apply as gold prices fluctuate:
1. Embrace dollar-cost averaging (DCA)
With Dollar-Cost Averaging, you can invest a fixed amount of money into gold at regular intervals (e.g. £200 every month, or £500 every quarter). When gold prices are high, your fixed amount buys fewer ounces. When prices are low, the same fixed amount buys more ounces.
Instead of trying to fully predict short-term market trends, investors can avoid panic buying during dips or chasing sudden price spikes, while adopting a consistent investment habit. Moreover, you don’t need a large lump sum to get started; just small, manageable contributions that fit comfortably within your budget.
2. Buy physical gold during dips, not hype
This strategy involves actively monitoring gold prices and making additional purchases of physical gold (bars and coins) when you observe a significant, albeit temporary, price drop. It gives investors the opportunity to buy more gold at a lower cost. Once prices recover, you can increase your potential profit should you decide to sell your holdings—see our latest blog for more information on how to sell gold.
For those who prioritise tangible assets, buying during dips is a direct way to accumulate more physical gold, providing a greater sense of security and control over their wealth as a hedge against inflation while other assets like stocks or bonds decline.
3. Diversify your holdings
One strategy that is always recommended is diversifying your holdings. Gold should be a component of a broader, well-balanced portfolio, not the sole investment. This helps reduce the overall risk if other assets experience a downturn; gold remains stable or even appreciates (and vice versa), offsetting potential losses.
Combine physical gold (coins, bars) with ETFs, gold mining stocks, bonds, or real estate investment trusts (REITs). Ultimately, diversification with gold helps preserve purchasing power over the long term, particularly during times of economic uncertainty and currency devaluation.
4. Choose a reputable bullion dealer
Finally, if you decide to invest in bullion bars or coins, then selecting a well-established and trusted dealer is vital. They’ll be able to provide you with transparent pricing, where you can compare premiums on different products. For example, larger bars often have lower premiums per ounce than smaller coins.
Dealers also guarantee the authenticity and quality of the gold they sell, protecting customers from counterfeit items that could be sold directly via online marketplaces like Facebook or Gumtree. What’s more, many offer secure storage options, eliminating the need to store precious gold at home, as well as buy-backs, making it easier than ever to sell your gold when needed, often at competitive prices.
Buy gold at the best price with Bullion Giant
Navigating the gold market can be complex, but with the right information and a trusted partner, you can make sound investment decisions.
Bullion Giant provides a reliable and secure platform for your purchases, offering competitive prices and a wide selection of gold products to suit all investment needs. Whether you’re interested in buying smaller weights, such as the 1g, 2g, 5g or 10 gram gold bars, or looking to diversify your collection with larger pieces, we have you covered.
Our selection includes expertly crafted, heavier gold bars, such as the 500g and 1kg gold bars and our heaviest product – the 12.5kg gold bar. What’s more, we offer flexible payment options, so you can pay via bank transfer, debit or credit card or spread the cost of your purchase over 3 months with iwocaPay.
Contact us today to enquire about our collection of gold products. Our team of experts will be on hand to assist you with any queries.
