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Learn the 4 key factors driving the price of gold

Throughout history, gold has proven to be a hedge against inflation and monetary depreciation. Therefore, this precious metal represents a safe haven for your money.

Liechtenstein es uno de los centros financieros más seguros
The firmness of gold's value is a quality that has defined it as a protective asset. Getty Images.

Have you ever wondered why gold increases its price over the years? What allows this phenomenon to be sustainable over time? Read on to discover the key four reasons why gold is an asset with the ability to defend the value of your savings.

Against all odds

A feature that has defined gold as a protective asset throughout its historical evolution, is precisely the firmness of its value, even through spectacular stock market falls and sociopolitical instability events. Thus, gold is considered a low-risk safe haven asset.

In recent years we have witnessed a good dose of economic uncertainty. From historic inflation and high interest rates, to market volatility and investor skepticism.

Gold is what it seems to be

Based on various analyses of the value of this precious metal, it is possible to see how its progression is marked by an upward trend throughout history. Here are 4 factors driving the price of gold:

1. Value of the US dollar

Gold is generally a dollar-denominated asset, meaning that the price of gold is quoted in this currency. Dollar-denominated assets typically have an inverse relationship with the value of the US dollar. Therefore, if the value of the dollar decreases, the price of gold will increase and vice versa.

In situations where the value of the dollar declines, investors may purchase less gold per dollar due to decreased purchasing power, which intrinsically increases the price of this precious metal.

2. Demand from central banks and investors

Central banks hold paper money and gold in reserves. As central banks diversify their monetary reserves (from the fiat currencies they accumulate into gold), the price of gold tends to increase. Many of the world's nations have reserves made up primarily of gold.

Bloomberg reported that global central banks have been buying the most gold since the United States left the gold standard in 1971. After a drop in central bank gold purchases in 2020, the pace accelerated again in 2021, and surpassed again the 50-year record in 2022.

Gold is also demanded by exchange traded funds (ETF). These are securities linked to the price of gold that investors can buy and sell like shares. In that sense, investors’ appetite for gold is one of the key factors influencing the price of this precious metal.

3. Interest rates

The relationship between interest rates and gold price is a bit complicated. In general, they have an inverse relationship. Therefore, the gold price typically rises when interest rates fall, and typically falls when interest rates rise.

However, as recent history has shown, the correlation is not always direct. In its attempt to quell rampant inflation, the Federal Reserve raised interest rates starting in March 2022. Since then, the price of gold has twice challenged its all-time high price in US dollars and gained more than 7% in the first half of 2023.

4. Geopolitical factors

Geopolitical factors can have a direct effect on the price of gold, meaning that the price of gold will move in the same direction as the level of geopolitical tension. Because this precious metal is considered a safe haven asset, investors often turn to gold during difficult times in an attempt to protect their money. Therefore, if there is a geopolitical threat, the gold price ​​usually increases. That is precisely what happened in the first quarter of 2022, when the conflict between Russia and Ukraine caused the value of gold to increase by 6%.

Protect your savings!

Aktagold's mission is to help people around the world protect their money from the economic and financial instability of their home countries. Aktagold gives them access to gold savings in the most secure vaults in Canada, an option that was previously reserved only for the wealthiest.

Contact us and learn how to protect your wealth.


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