Factors That Affect Gold Price

Gold investors have continued to thrive throughout the last few years in spite of any worldly uncertainty.

Despite any pessimism that derived from miners writing off assets in order to cut capital expenditures, there are still plenty of gold investors who are reaping notable rewards from expanding their gold mines.

The key factors that have the biggest influence on gold price are as follows:

Factors That Affect Gold Price

1) Monetary Policy

Monetary policy has one of the biggest impacts on gold prices.

This is because interest rates have a big impact due to a factor called “opportunity cost” which is the idea that you can sell or ‘give up’ one investment for the potential of obtaining a larger gain elsewhere.

Whilst interest rates have recently been holding near historic lows, bonds are often yielding nominal returns that are far less than the national rate of inflation.

This inherently leads to monetary losses but nominal gains which benefit gold investors as gold becomes an incredibly attractive investment opportunity in spite of its 0% yield as the opportunity cost of investing in alternative interest-based assets is just as low.

However, if lending rates rise and opportunity costs become higher, then investors would be far more likely to overlook gold as they would be guaranteed a higher return elsewhere.

2) Economic Data

Another thing that can impact gold price is economic data. wage data, manufacturing data, and jobs reports can have an impact on monetary policies which inherently has an impact upon the price of gold.

Although the economy is never set in concrete, the stronger that the economy is, the lower the price of gold tends to be.

This is because strong economic growth indicates that the government could tighten its monetary policy which inherently impacts the opportunity costs as discussed above.

Conversely, low employment rates and weakened data alongside weak economic growth can impact the decisions on interest rates which increase the price of gold by proxy.

3) Inflation


A major factor that can have an impact on the price of gold is inflation.

Inflation usually pushes gold prices higher whilst lower inflation rates often have a deflation effect on the price of gold. Inflation is usually a sign of economic expansion as the government expands the money supply whilst the economy is in a state of expansion.

This expansion dilutes the overall value of each monetary note that is in circulation which makes it more costly to purchase assets that are considered a store of value, like gold.

This is the reason why quantitative easing programs have been viewed as incredibly positive for the price of gold. The push and pull that occurs between inflation and interest rates often has a tumultuous impact on gold prices.

4) The Movement Of Currency

Currency movements are another major influence with regard to the price of gold.

This is because other commodities will naturally increase in value when currency is falling.

Conversely, strengthening currency pushes down the price of gold. As such, there is an inverse relationship between currency and gold.

5) Supply And Demand

Supply And Demand

This is often overlooked but supply and demand economics has a significant impact on the price of gold as well.

This is because an increased demand with low supply always has a tendency to raise the prices of that particular good.

Conversely, an oversupply of the same goods will weaken the prices and push them lower.

6) ETFs

The impact of electronic-traded funds also has an impact on the price of gold, although this impact is far smaller.

This is because ETFs aren’t typically regarded as market influencers. ETFs allow for an increase in liquidity and people usually invest in these to spread any risks across a larger number of assets.

As the demand for gold alternates, the price can shift depending on the purchase and selling of ETFs.

This is one of the factors that are likely to always have a positive impact on gold prices and the purchase of gold ETFs has surged dramatically in recent years.

7) Uncertainty

Uncertainty is a broad factor but it undoubtedly has a major impact on gold prices.

Although there is no specific way to hone in on uncertainty, it can be characterized through external factors like political uncertainty.

Whether the stock market is certain or uncertain has a substantial influence on gold prices.

The one thing that gold investors should bear in mind is that uncertainty is not able to be quantified like alternative factors.

It can differ from one worldly event to the next and so you should always remain vigilant during times of uncertainty to ascertain the potential impact on the price of gold.


To conclude, the price of gold is influenced by several contributing factors that range from monetary legislation, federal decisions on interest rates, and political uncertainty.

Whilst raising interest rates has a positive impact on the price of gold, the reverse process inevitably lowers gold prices.

Therefore, if you are a gold investor, you should ensure that you are keeping a vigilant eye on monetary decisions and the political climate to ascertain when it is the right time to expand your mine or cash in on your assets.

Ultimately, vigilance is key when making any form of investment.

You should always have thoroughly researched the asset that you are investing in prior to making any investment decision as this will ensure that you have peace of mind with regards to your assets and are aware of any potential impact on the price of your gold mine.

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