Gold prices are affected by many factors, as gold is one of the most important commodities that many companies use as a tool to hedge against market fluctuations. Supply and demand, which influence the rise and fall of prices.
Over the past two years, gold prices witnessed a significant increase, as the price of an ounce recorded its highest price in 2011 at 1923 dollars, while it recorded the lowest price at 1350 dollars per ounce, and according to recent data issued by the World Gold Council, the total gold produced throughout history until In 2016, about 158 thousand tons, which is equivalent to a cube with a side length of 20.2 meters. The data also mentioned that the annual production volume is about 2500 tons, and the central banks in the world have the largest gold reserves against economic conditions.
There are many factors that affect and control the price of gold, so what are those factors?
1. Amount of Central Banks Reserves:
One of the most important factors affecting gold prices is the volume of reserves owned by central banks. When banks increase their purchase of gold, prices rise due to the decreasing supply of gold.
2. Interest rates:
The relationship between interest rates and gold prices is an inverse relationship, when interest rates fall, gold prices rise and vice versa.
3. Economic crises:
Political and economic tensions are one of the important reasons that make investors accept to buy safe havens, led by gold, and thus affect prices to rise.
4. Inflation rates:
Inflation rates refer to the purchasing value of the currency or the volume of goods and services that can be purchased and do not reflect price changes. There is a common factor between interest rates and inflation rates. When inflation rates rise, it is necessary for the Central Bank to raise interest rates.
5. Trade Balance:
When the rates of demand for the purchase of a commodity rise, this means an increase in demand for the purchase of the currency of that country, and this affects the process of trade exchange, which will rise, and on the other hand, when the imports of countries exceed their exports, this affects the trade exchange operations.