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, if you’ve ever monitored the market or are currently looking to buy gold, you’ve probably noticed that its price can be quite volatile. Let’s delve into why this happens by exploring five key reasons for gold price fluctuations.
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 explore the five main reasons behind gold price fluctuations.
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 or increased industrial use—prices tend to rise. On the other hand, if supply outpaces demand, prices can fall. The mining process itself is lengthy and expensive, so changes in supply can be slow to respond to shifts in demand, leading 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. 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 conflict in Ukraine, can lead to increased gold prices as uncertainty makes other investments, such as stocks or bonds, riskier.
3. Inflation and interest rates
Inflation and interest rates are closely linked to the price of gold price fluctuations. Gold is traditionally seen as a hedge against inflation. When inflation rates rise, the purchasing power of fiat currencies falls, meaning the money you hold buys less than it did before.
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 in emerging markets, have increased their gold reserves as a way to diversify away from the US dollar, thus influencing global gold prices.
5. The jewellery market
The jewellery market is a major driver of gold demand. In countries like India and China, gold jewellery is not only a cultural staple but also a traditional form of investment. Seasonal and cultural celebrations, including weddings and festivals like Diwali or Lunar New Year, often boost gold demand and contribute to fluctuations in its price.
Gold investment is easy and hassle-free, making it a top choice for those seeking to perverse their wealth or use it for personal reasons. Consequently, during times of economic growth, people tend to spend more on luxury gold items like watches, rings, and necklaces.
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.
