What Affects the Price of Gold?

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Anyone, like us, who watches the price of gold closely will have noticed the price leap up during the COVID-19 crisis, from an already quite high price, to unprecedented levels.  Since the start of the outbreak, it has fluctuated quite a bit like it generally does but stayed very high.  It’s well known that the price of gold rises in uncertain times because it is seen as a ‘safe investment’ but it got us thinking about what different factors affect the price of gold so here are some of the most significant ones:


Obviously, the more people want to buy gold, the higher the price goes up.  About 50% of the world’s gold goes into making jewellery and as countries with large populations like China and India become more wealthy, the more jewellery they buy, so the price increases.  Because gold also has good electrical conductive properties, it is increasingly used in electronics manufacturing and for other industrial purposes as well as being used widely in the medical world because it is resistant to corrosion and bacteria growth.  People aren’t just buying gold to use or wear it though.

A ‘Safe’ Bet

Investing in gold is big at times of economic uncertainty because it generally holds its value.  While the property market drops and the stock exchange is volatile, gold is seen as a ‘safe haven’ to invest money in.  You’ll notice any reference to it being a totally safe bet are in inverted commas and that’s because no investment is totally safe.  Gold is, however, often used as a hedge against economic issues like currency devaluation and rising inflation.  This means that in turbulent times like these, people are keen to invest in gold and that drives the price up.


Gold has an interesting relationship with inflation because although when inflation is high, the price of gold goes up along with everything else, this is often due to people buying it as a hedge against inflation as well as due to the inflation itself.  People do this because as inflation rises, the value of currency falls so gold is better to hold onto than currency.

Value of the Dollar

The currency most closely tied to the value of gold is the US Dollar.  The Dollar dominates the gold market and thus, when the value of the Dollar falls, the price of gold rises because people can get more gold for their money and demand rises.


The other side to increased demand driving up prices is supply falling or cost of production rising.  Even though gold production has risen over the last ten years, the gold itself has become harder to get at and, therefore, more expensive to produce.  Gold mines have to be deeper to get at gold reserves which makes them more hazardous, requiring more safety measures and more equipment and more personnel etc.  More expensive gold production and anything which hampers the supply of gold will, clearly, affect the price.

The current high price of gold means we’ve seen an increase in people wanting to sell us their gold jewellery but also a rise in demand for second hand gold as this is a way of getting your hands on the same quantity of gold for a lower price.  It means we have some lovely things coming in but they’re also selling quickly so, if you would like us to value your jewellery with a view to buying it off you, or you would like to buy some jewellery, please get in touch by calling 01273 239763 or 07810 652032 or emailing info@jamesrossjewellers.co.uk.

What Affects the Price of Gold? was last modified: June 19th, 2020 by Admin