How/why gold rates rise and fall?
In: Economics
Because of changes in supply and demand.
If there exists 100 ounces of gold in the world but there is people demanding 200 ounces then there is more supply than demand. This will allow sellers to raise the price since buyers will compete and whoever is willing to pay the most wins the gold.
Many factors can influence price movements in gold. The opening of a new mine will increase supply. Or if there is a market crash then gold for many investors is still a safe place to put money and therefore demand goes up.
In theories of supply and demand it is at the end of the day information that makes the price move. If someone finds a 5000 ounce gold nugget in a mine but doesn’t tell anyone then no one will know supply has increased and price stays the same.
These basic rules of supply and demand counts for any Tracey good. Not only gold. It is also a heavily researched topic by economists trying to understand how price is moving. There is a lot of uncertainty involved of course when it comes to information. If anyone at anytime had perfect information about supply and demand then they could reliably predict changes in price and earn a lot of money on the stock markets. That no one can do that is a testament to the fact the supply and demand is a very complicated process.
Gold is just like any other commodity. For all intents and purposes, there is a ‘fixed’ supply of gold, so the price goes up or down based on how many people are looking to buy and sell gold.
Now, gold is special in that it has historically been seen as a good store of value during uncertain economic times. People have always seen gold as valuable, so it is likely that they will always see it as valuable going forward. If there are fears about economic prosperity, inflation, or general stock market losses, people will invest heavily in gold to ‘ride out’ the storm. This massive wave of investment will drive prices higher.
The opposite will happen when opposite economic conditions happen.
Umm looking at some of your comments I think you have a false impression that the US currency still adhears to a “gold standard”. This hasn’t been the case for several decades.
Actually I don’t think there’s one country left that follows a gold standard. It’s now just a regular commodity bought and traded like iron, aluminium or tin. Still valuable though.
That said gold was still treated as a commodity and its value still fluctuated.
The value of a currency is usually tied to the economic value of all the country holdings. The stock markets are one factor that feeds into currency value.
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