What’s Behind the Changes in Gold Prices?

One of the things that can discourage people from investing in gold – whether it’s bullion or coins from dealers like Golden Eagle Coin – is that they don’t understand what causes the price swings. There are six major drivers to bear in mind when you’re dealing with gold, so let’s look them over.

Monetary policy

This is the biggest influence on the piece of gold and it’s determined by the Federal Reserve.

Interest rates also have an influence because of opportunity cost. Opportunity cost is when someone gives up a likely gain from one because another investment may yield a better return. Interest rates are low now, with many returns lower than inflation. This means that there’s a loss of money in real terms so people will ditch their existing investments and buy gold because they’re not going to lose much, but they’ll eventually make something in gold.

Conversely, when interest rates are high, investors will jump back into interest-earning assets. Canny investors listen to what the Federal Open Market Committee says because if it announces that interest rates will rise, there’ll be gold coming back onto the market, pushing prices down. If they’re set to fall then gold comes back into favour.

Economic reports and data

Economic data includes manufacturing data, wage and job reports and GDP growth. This information influences the Federal reserve’s monetary policies, which then has a knock-on effect on gold prices.

When the economy is strong, gold prices tend to fall, but if unemployment goes up or GDP falls, gold starts to look better to investors.

Simple supply and demand

This is also a major factor in gold, as it is everywhere else. If there’s less gold on the open market, prices go up; then when there’s an oversupply, the prices fall.


Higher inflation has the effect of making gold prices rise, whereas deflation has the opposite effect. When things are going strong in the economy, the Federal Reserve usually increases the money supply, making each note worth that little bit less. Gold has a fairly stable store value, so it will simply cost more per unit in these circumstances.

As you can see, inflation and interest rates create a see-saw effect on gold prices so it’s important to get to grips with how they work.

Currency movements

Gold is bought and sold mainly in US dollars, so the state of the dollar is strongly linked to the price of gold.

If the USD is weak, gold prices tend to rise because other currencies and commodities rise in relation to the dollar. When the USD is strong, gold prices fall – the two are inversely related.

The uncertainty principle

There’s plenty of that around at the moment! Certainty means people feel safer investing in stocks, bonds and similar assets, whereas uncertainty makes them turn to a physical commodity that holds its value under most circumstances.

The thing about uncertainty is, however, is that you can never be certain (sorry…) about what’ll cause it. It could be political upheaval, it could be a terrorist threat, unrest in the Middle East… Anything that gives people the jitters will send a percentage of them into prepping mode, which makes them buy more gold just in case “it” hits the fan.

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