Why Does Gold Fluctuate in Price?
Did you know that the gold sitting in your jewelry box right now is considered an investment? The precious metal is currently selling for more than $3,300 an ounce! This price has been going up over the past year, an increase from $2,400 just 12 months ago. So, why does the value fluctuate so much, and why is gold at an all-time high right now?
There are several factors at play that make gold prices increase or decrease.
What You Will Learn
What Makes the Price of Gold Go Up?
Typically, you’ll see gold prices rise in these instances:
- Increased demand for any reason
- Economic or geopolitical uncertainty
- Inflation
What Makes the Price of Gold Go Down?
In contrast, the price of gold often goes down in the following instances:
- Decreased demand for any reason
- High interest rates
- Influx of new gold in the market
We examine each of these factors below and discuss whether gold is worth investing in, alongside expert opinions from BriteCo’s Director of Jeweler Relations, Rachel Akmakjian.
How Is the Price of Gold Determined?
As mentioned, a range of factors influence gold’s value. As these circumstances change, so does the price of gold.
Supply
SupplyGold is a finite resource. There’s only so much in the world, and mining only adds a small amount of “new” inventory to the overall amount of sellable gold at any time. The available amount of gold changes from year to year and could be positively impacted by new discoveries or negatively affected by environmental restrictions that reduce the amount of gold mined.
Demand
Of course, demand for gold is combined with supply. As with many assets, people buy more gold in some years, depending on factors such as the economy. If investors and general consumers have less disposable income to spend, the price of gold will be affected accordingly.
Central Banks
Central banks buy quite a lot of gold as both a safeguard and an asset. When they buy up more gold, this can lessen the amount available to everyone else, which causes prices to go up. When savvy investors see central banks buying more gold, they may also see it as a sign that they should buy more, too, thus causing prices to rise even further.
The Economy
The overall economy also impacts gold. When the economy is “bad,” gold is considered a safe investment opportunity compared to other options like stocks or bonds. This increases the demand for gold, limits the supply, and raises the price of precious metals.
Specific economic factors that can influence gold prices include inflation and interest rates. When inflation is up, so are gold prices, as demand increases (remember — it’s seen as a “safe” option). In contrast, when interest rates are high, demand usually decreases, leading to lower prices.
As Akmakjian explains, “If inflation remains and high economic uncertainty persists, gold will likely remain strong. Whenever there’s uncertainty globally, people like to put money towards things they know hold value. And gold has proven time and time again that it does hold its value.”
Politics
Demand for gold rises not only due to economic uncertainty but also due to political uncertainty. Unlike a specific country’s currency, gold is universally recognized as valuable worldwide and can be physically moved out of an area of political instability if needed.
Emotions
Investor emotions and speculation regarding upcoming market trends can also influence the price of gold all on their own.
Why Do People Invest in Gold?
Given such drastic swings, why do people invest in gold in the first place? There are a few things that make gold an attractive option.
- There is a limited supply, and “extra” gold cannot be printed or created.
- It’s valuable worldwide.
- Those with broader investments prefer an additional way to diversify portfolios.
- Gold is a tangible item you can stock up on, safeguard, or move (unlike stocks).
Those benefits aside, though, gold investing does come with its risks, namely, price fluctuations. So you’ll want to be sure the precious metal is the right investment for you.
Should You Invest in Gold?
As with any investment, the smart thing to do is buy low and sell high. Before investing, look at current gold prices and economic circumstances: If the price is currently low and likely to rise, it might be a smart time to invest.
But be prepared for the long haul as gold is considered a long-term investment, says Akmakjian. “Gold is not suitable for quick turnaround profits as it requires decades to yield significant results, and its benefits are often only noticed during periods of rising prices. Turning money into gold requires time for it to grow.”
Also, consider your overall investment portfolio. Gold should not take up the majority of your portfolio, but rather should be a way to diversify your assets. If your investment portfolio is slim at the moment, you might choose to hold off.
Make sure that you’ve done your research before any purchases as well. Don’t invest in gold without thoroughly examining your options for types of investments and ways to buy it.
Otherwise, if you’re looking for a way to diversify your investments with an asset that is regarded as relatively safe, it may be wise to invest in gold in the near future, as the reward often outweighs the risks. As Akmakjian points out, “Despite fluctuations, gold generally increases over time, even with temporary drops.”
Types of Gold to Buy
There are various types of gold investments. You can buy physical gold, but you can also choose options such as gold exchange-traded funds (ETFs) and gold futures.
You can purchase gold ETFs much like you would purchase stock, wherein a company uses your investment to buy and hold gold. It’s a way to invest in the precious metal without actually purchasing the physical item.
Gold futures are less popular, but are appealing to some. They essentially guarantee you the ability to purchase gold at a future price and date.
Akmakjian says there are some precautions to consider when purchasing gold as an investment. “Ensure a reputable source, verify authenticity, and having secure storage are all essential for a valuable commodity,” she says. “This is a precious asset, so take any necessary precautions.”
If you’re interested in where to sell gold, check out our guide for tips on getting the most money for your pieces.
Gold Price Fluctuations FAQs
Is Gold Cheaper in Some Countries?
Yes, the price of gold may be impacted by geography, with some countries selling or buying it at lower prices than others. However, despite this, gold is still considered a very safe investment and regarded as internationally valuable.
Is Gold Cheaper During Certain Parts of the Year?
Yes, historical trends show that gold is often more affordable during the spring, and prices may go up again in the fall.
Where Can You Buy or Sell Gold?
You can buy and sell gold in several ways. Companies exist that are fully dedicated to buying and selling gold, but you can also do so from individual sellers. You can even buy gold bars at Costco!
Is Gold the Best Precious Metal to Invest In?
Gold is the most popular precious metal investment option, but investing in silver, platinum, or palladium is not out of the question.
How Do You Find Out How Much Gold Jewelry is Worth?
If you want to find out how much your gold jewelry is worth — based on the gold content alone — multiply the weight by its purity, then multiply that by the current gold market price.
Protect Your Gold Investment with Jewelry Insurance
Whether you’re considering investing in gold jewelry or have long been doing so, you’ll want to keep your pieces safe from theft, damage, and loss. Specialized jewelry insurance from BriteCo can fill in the gaps that your homeowners insurance leaves behind, along with worldwide protection and zero deductibles.
Get your quick and easy jewelry insurance quote from BriteCo now.
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