When it comes to gold price forecasting, experts must take a number of factors into consideration. Gold is used in everything from jewelry and industrial production to central bank reserves and personal investments. All factors come together to move the price of gold up or down at a given time. Here, you can explore the different factors that affect the price of gold as well as why some experts predict a positive future for gold prices while other experts remain skeptical.
What Factors Affect the Price of Gold?
Gold is valued today for a variety of reasons, including investments, making jewelry and manufacturing medical and electronic devices.
Factors that affect the price of gold include:
- Central Bank Reserves: Central banks hold both gold and paper currencies in reserve. In 1971, the United States moved away from the gold standard. The price of gold usually rises as central banks move to diversify away from paper currencies and into gold. Many nations in the world have reserves composed predominantly of gold, and demand from central banks continues to increase .
- Investment Demand: Exchange-traded funds, or ETFs, hold gold and issue shares for investors to purchase and sell. Some of these funds represent ownership of the gold itself, while others are shares in mining companies. As the volume of gold trading on COMEX (a division of the New York Mercantile Exchange, or NYMEX) goes up, the price of gold also rises.
- Jewelry and Industrial Demand: Gold is used to make jewelry as well as components of technology. Further, gold is used in industry, such as precision electronics (such as GPS units) and manufacturing medical devices (such as stents). Basic supply and demand can affect gold prices, so as the demand for goods such as electronics and jewelry goes up, the cost of gold goes up, as well.
- Production of Gold: World gold production affects gold prices, as supply and demand plays a role here, too. However, since 2016, gold mining production has not changed significantly , even as demand for gold increases. Mining production may even be declining. As new supply from gold producers declines while demand increases, the price of gold rises. Major worldwide gold mining players include:
- South Africa
- United States
- Value of the U.S. Dollar: As gold is dollar-denominated, the price of gold is inversely related to the value of the U.S. dollar. When the U.S. dollar is strong, gold prices are usually lower and more controlled. A weaker dollar, on the other hand, tends to drive the price of gold higher as demand for the metal increases. Gold is often viewed as a hedge against inflation. When major disruptive events take place, however, gold does not always correlate to the U.S. dollar.
- Wealth Protection: People often turn to gold investments in times of economic uncertainty, thanks to gold’s enduring value. Gold is considered a ‘safe haven’ in turbulent times, and it is used as a hedge against inflation as well as currency devaluation. Gold is also thought to offer protection in times of political instability. Interest in gold investing may increase, and as a result,the prices of gold may rise when the market shows falling expected or actual returns on:
- Real estate
Why Do Some Experts Predict a Positive Future for Gold Prices?
Experts predict that unrest and global uncertainty will continue to rise, in turn causing the prices of gold to move higher and higher. This was the case even before the COVID-19 crisis began.
Tensions and Uncertainty
One significant factor contributing to the ongoing climb in gold prices is prolonged uncertainty and tension in the relationship between the United States and China. The U.S.-China trade war drove gold prices up. Additionally, continuing tensions between the two countries serve to create uncertainty around the world. Since gold is thought of as a hedge against uncertainty, gold price forecasting has the price of gold rising.
Overall, gold prices continue to climb, stimulated by:
If political tensions continue and even get worse, gold price forecasting will take this into consideration.
Central banks are also adding to their gold reserves, further keeping prices of gold high. Well-known central bank buyers like China and Russia are continuing to buy gold alongside countries in Eastern Europe and Latin America. Central banks that are adding to gold reserves in recent years include:
Even as demand for gold is increasing, many experts believe that new supply for gold producers is starting to decline. New gold discoveries are not happening as often as they have in the past. Even if gold prices rise, producers cannot quickly or easily increase mine output in response. With a supply deficit on the horizon and gold prices possibly increasing already due to other factors, the price in gold may be further stimulated to rise.
Why Are Some Experts Skeptical of Gold Prices?
Experts are, at times, skeptical of gold prices as they view gold as an investment that is particularly sensitive to psychological factors. As gold moves on emotion, some professionals shy away from buying it.
Experts may not view panic on Wall Street as a signal that the financial system is collapsing. Others believe deflation is more likely than inflation when the market crashes.
In general, stock of mining companies can be particularly vulnerable and volatile. This also makes some experts skeptical of gold prices.
Many factors affect the prices of gold and, in turn, gold price forecasting. Experts must look at all of these factors to predict how the prices of gold will fluctuate over time. Whether experts anticipate positive future prices for gold or take a more skeptical approach, they look at all of these factors together to come to a prediction for how gold will perform.
1. Goldhub. ‘Gold Demand Trends Q2 2019,’ https://www.gold.org/goldhub/research/gold-demand-trends/gold-demand-trends-q2-2019/central-banks-and-other-institutions. Accessed September 6, 2020.
2. USGS. ‘Gold,’ https://pubs.usgs.gov/periodicals/mcs2020/mcs2020-gold.pdf. Accessed September 6, 2020.