Factors that influence the price of gold.

A carat is a measure of gold content or gold purity. The higher the carat, the purer the gold. For example, a jewelry which is made up with a 22 ct implies that 22 parts of the jewel are made up of gold and the remaining two parts are made up of other metals such as nickel, copper and silver. In 22 ct gold price, for the 100 per cent, only 91.67% is made up of gold. The addition of other metals makes the jewel harder and more durable. Apart from making expensive jewelry or coating of expensive devices, gold is used as a standard of value for currencies all over the world. The price of gold gets stated in U.S dollars as a currency value and can fluctuate with market conditions. Below are some of the most significant influences on the prices of gold that any investors with an interest in gold should understand:

1. Global crisis

Gold prices tend to rise when people lack confidence in the government or the financial markets. That is why gold is a crisis commodity. The different events of the world have an impact on the price of gold because it's seen as a source for safety. Political instability often equates to an increase in gold prices.

2. Supply and demand

This factor might be underestimated but the simple demand and supply economics has the influence on gold prices as well.
Just like any product or service, an increased demand for gold combined with a low supply has the tendency to pull the prices high. Gold is a finite resource and when global economic conditions make gold attractive then the demand increases although the value of the gold will remain fairly stable in the long-run.

3. Inflation

Currency values fluctuate with time but the gold value which is measured in terms of what an ounce of gold can buy might stay stable in the long term. Rising on the higher levels of inflation tend to push gold prices higher whereas lower levels of inflation reduce the prices of gold. Investors might feel encouraged to buy gold when they feel the value of their paper money will decline.

4. The value of the U.S dollar

The U.S dollar is still the most dominant reserve currency and many different countries all over the world use the U.S dollar for international trades. The price of the gold and the strength of the dollar often have an inverse relationship. When the dollar is strong the value of gold is low and when the dollar is weak the gold prices become high.

5. Central bank

In the U.S the Federal Reserve is the central bank. Most countries have central banks and other dominant ones include the European Union and the Bank of Japan.In some cases, bank failures and irregular economic policies can attract investors to buy more gold. Some investors prefer the physical and tangible security of holding wealth when the central banks are going through deficit as a protection to their wealth.

We have long been enamored by gold and it's very likely that this will continue. The factors above influence the price of gold as one of the world's precious metals. 

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