Gold Price Guide:  What to Know Before Investing

Many newbies and inexperienced investors often get the wrong idea when investing in gold bullion. For them, gold is that shiny yellowish metal expected to be an ever-ending bullish run. To them, you can do no wrong with gold bullion. However, this thought process cannot be more far from reality.

As we’ll get to know in this article, gold is not always on a permanent bullish trajectory. It rises and falls frequently, with basic economic concepts like Demand and Supply affecting its price action.

Factors affecting the price of gold

Demand

Market demand remains a driving force for price determination. Take a commodity like Crude oil; its global demand is usually reflected in its pricing. Where there’s an increase in demand, a price surge can be expected. Conversely, a reduction in price actions occurs where there is low demand.

Under similar circumstances, gold prices also reflect the level of demand at a given time. So, when investors buy gold bars during economic turmoil, demand for gold increases as its price follows suit. Also, where massive gold holdings are sold off, it could lead to a temporal price change.

Note: Irrespective of market demands, gold remains the less like commodity or investment asset (stocks, currency) to lose its relative value. This makes it a suitable defensive asset against inflation, currency devaluation, and other economic issues.

Supply

The total amount of gold mines in the world has been estimated to fall short of global demands. In fact, the entirety of gold mined in history is only evaluated to be about 198,000,000 kilograms. This imbalance in gold supply creates a global scarcity that influences its price. In a way, this limited supply helps to ensure stability in long-term price movement with less risk of hyperinflation -caused by excess supply.

Market Conditions

Market conditions are another factor to consider when looking at gold’s price.

Many investors speculate about government programs and central bank policies before making their gold bullion investment. These programs or policies often indicate how subsequent market trend unfolds. In some cases, it may herald looming inflation, recession, or stock market crash. For an investor, this could give enough incentives on when to buy gold for hedging purposes.

Note: while investors may speculate on economic factors that might prompt their gold purchase, it is important you understand that gold itself is not a speculative asset. What this means is that gold isn’t necessarily a short-term asset. To put this into perspective, from 1990 to 2020, the price of gold rose by 360%. So, to think that the price of gold will triple or quadrable in the span of a year would be well overreaching.

Conclusion

Notwithstanding price fluctuations, buying gold coins and gold bars is a great long-term investment. For further information on gold prices and other precious metals, you can contact TRB Bullion.