subject: Why Do Gold Prices Fluctuate? [print this page] People aiming at gold investments are worried about the fluctuating gold prices. Gold is one of the biggest fluctuating commodities. The constant change in the price of gold is caused by numerous primary triggers. Gold is the most precious metal with exclusive universal value. India is the greatest market for gold and a lot of budding investors invest in gold for financial security and attaining healthy profits. If such is the case, then why do its prices keep on fluctuating? Gold rate and the ratio of its demand-supply keep on changing due numerous reasons.
Some basic causes of fluctuating prices of gold
Gold investment has numerous benefits. It offers a steady investment instrument for both short-term and long-term financial planning. It is malleable and indestructible hence it holds its original appearance for years to come. Apart from gold jewelry, you can invest in gold bullions, coins, equities, stocks, ETFs and gold mines. All these ways of investing in gold have benefits of their own. With so many ways of buying gold, there ought to be various ways that affect its demand and supply.
High inflation
The biggest reason behind the highly fluctuating gold rate is inflation. The rate of inflation has been unstable since past few decades. High inflation results in higher investments and what is better than buying gold? As a result, gold prices are directly proportionate with high inflation rate. High inflation increases the prices of physical gold and gold stocks, while low inflation reduces it.
Unstable US Dollar
United States of America is the key player in the world economy. Position of its currency, US dollar, has numerous positive and negative impacts on the currency rates across the globe. When the value of US dollar increases, the demand for gold also increases. As a result, the gold prices increase. It is also the reason why a lot of investors buy gold as a hedge against decreasing value of US dollars.
Low interest rates
Overall interest rates affect the prices of gold . Rate of interest greatly affects the returns of investments including bonds, real estate and equities. In situations like low rate of interest, people seek compensation for the risk factor and added inflation. In such cases, there is no better option than buying gold. It provides financial security even during high inflation. As a result, gold prices increase when there are low interest rates.
Mismatch in demand-supply
As the basic law of economics explains, the correct ratio of demand and supply is the key factor for a steady economy. If there is a mismatch in the ratio of demand and supply of gold, it causes fluctuation. Gold market is struggling with high demand and low supply in the countries including India, China, Russia and America. Demand for gold also change due to the reasons triggered by involvement of human sentiments including riots, national crisis and the fear of bankruptcy or currency decline.
Festivals
Apart from investment, buying gold is a ritual in India especially during festive seasons. As a result, gold rates show great fluctuations before and during the major festivals in India.
