What Causes The Price Of Gold To Fluctuate?
Considering buying or selling gold coins or unwanted gold jewelry? Ever wonder what causes prices to go up or down? In this post, we’ll touch on the basics of gold pricing.
Trading in old cold coins and jewelry that are just collecting dust in some dresser drawer has become a great way for people to turn these items into cash. It’s now easier than ever to get top dollar for gold thanks to online gold buying companies that offer free appraisals and secure shipping.
With the value of gold trending at all-time highs (it was $2,404.90 per ounce when we wrote this article on Friday, April 19, 2024) now is a great time for interested parties to explore cash for gold opportunities. But have you ever wondered what makes the price of gold go up or down? Let’s look at a few factors that can impact the price of gold.
Gold is a very unique commodity
Probably the best place to start is with the nature of gold itself. Unlike so many other commodities, such as oil or coffee, gold is not “used” once it is purchased. It’s simply held by the owner – oftentimes in the form of gold jewelry that gets tucked away in a home safe, safe deposit box, or bedroom drawer for years.
In other words, gold that enters the market stays in the market. However, more often than not once the initial purchase is made, the gold is kept out of circulation in the market by owners. For this reason, a rise or fall in the demand for gold jewelry is considered a weak indicator of the price of gold. Certainly, a major increase in the demand for gold jewelry could impact pricing, it’s just not considered one of the primary price drivers.
How much gold is left?
Mankind has been mining gold for ages. Unlike crops that can be regrown or commodities that can be replenished, gold is finite. At some point, the peak production of gold will diminish and when that happens the price of gold will surely increase. Are we there yet? That’s a point for debate but for all intents and purposes, gold mining is still a productive process, though one that is becoming increasingly challenging and expensive. But when you consider the fact pointed out above that most gold sold in the form of jewelry remains out of circulation once purchased, any future decrease in production could certainly have a major impact on the value of gold.
The impact of interest rates
This is a difficult price indicator to pin down because history has shown interest rates to have an impact on gold prices... and also not to have an impact. The conventional wisdom is that interest rates and gold prices enjoy an inverse relationship. When one goes up the other goes down. So, during periods when interest rates are high, gold prices will dip and when interest rates come down, the price of gold will rise.
However, recently history flies in the face of this relationship. In March of 2022, when the Federal Reserve raised interest rates to their highest points since 2007, that increase was followed by record highs in the price of gold by December of 2023. So, why did this happen? Perhaps, it was the state of the economy in general.
Good or bad economic conditions
The reason high interest rates are typically associated with lower gold prices is that they are also associated with a burgeoning economy. When the economy is chugging away at a good pace, experts playing the stock market tend to see bigger and better opportunities in riskier investments. They start feeling bullish and put their money into stocks and funds they believe will yield greater returns, which means there is less demand for gold causing its price to dip.
When the economy is stagnant or there is poor consumer confidence in the federal government or unemployment figures spike, it tends to have the opposite effect. The market pivots to a more conservative stance and relatively stable commodities like gold become attractive options. With more investors purchasing gold, the price goes up.
Gold exchange-traded funds (ETFs)
Gold ETFs are specialized investment funds that focus on companies that either hold gold bullion or actually mine for gold. When the demand for these funds among investors increases, it tends to elevate the value of gold. It’s a simple case of demand driving price. When more people are looking to buy into gold ETFs it increases their value, thus increasing the price of gold.
Conditions around the world
The state of the world can also impact gold prices. We are living in a global economy and gold is seen as a safe bet during times of international upheaval. Recently, this was demonstrated by a rise in the value of gold as the Russia-Ukraine conflict has escalated, and more recently during the conflict in The Middle East.
While conflict and other factors around the world may not impact gold prices in the U.S. economy as dramatically as our own economic conditions, they can certainly have an impact.
Conclusion
Determining the price of gold rests on a number of different factors and, for most of us who aren’t investment gurus, putting the pieces together can seem quite complex. In general, however, gold is a historically stable commodity that has less volatility than many other stock and bond options.
In terms of selling gold items or gold jewelry for cash, this stability is good news. While the value of gold will certainly fluctuate in relation to market conditions with high periods like we're currently experiencing yielding larger cash-for-gold payouts, ultimately, you’re likely to get a fair price for your gold jewelry and other items any time you decide to sell them.