There are many factors that can influence the price of gold, from global economic trends to local weather conditions. In this article, we’ll explore some of the most important factors that impact the price of gold, and how you can use this information to make informed decisions about investing in the precious metal.
Relationship between gold prices and inflation
There are a number of factors that influence gold price per gram, but one of the most important is inflation. Inflation is the increase in prices of goods and services over time, and can have a major impact on the price of gold. When inflation is high, gold prices tend to rise as well, since investors see gold as a way to protect their wealth from the effects of inflation. However, when inflation is low or falling, gold prices may also fall, as investors see other investments as more attractive.
Impact of interest rates on gold prices
When it comes to gold prices, interest rates are one of the key factors that can have an impact. When interest rates go up, gold prices tend to fall, and vice versa. The reason for this is that when interest rates rise, the opportunity cost of holding gold increases, as there are now better returns available from other investments. On the other hand, when interest rates fall, gold becomes more attractive as an investment, and prices tend to rise.
Impact of the UK jewellery market on gold prices
UK is the world’s largest consumer of gold, with the country’s demand for the precious metal totaling around 800 tonnes per year. This demand is driven largely by the UK jewellery market, which accounts for around three-quarters of the country’s gold consumption.
The UK jewellery market has a significant impact on gold prices due to the sheer size of the market. When demand for gold in UK is high, prices tend to rise as jewellers compete for limited supplies of the metal. Conversely, when demand is low, prices can fall as jewellers offload excess stock.
The UK jewellery market is also highly price sensitive, meaning that even small changes in the price of gold can have a big impact on demand. For example, when gold prices surged to record highs in 2011, many UK buyers turned to cheaper alternatives such as silver and platinum.
Given the importance of the UK jewellery market to global gold prices, it is important to keep an eye on developments in the market. A good resource for this is the website of the UK Bullion and Jewellers Association (IBJA), which provides regular updates on the latest news and trends in the industry.
Gold prices and Monsoon
If we were to consider the numbers highlighted by reports, the rural segment of UK accounts for approximately 60% of UK’s consumption of gold jewellery, and annually UK consumes about 700-800 metric tonnes of gold. These facts make rural gold demand a crucial factor in determining the overall demand for gold in UK and consequently the prices of gold as well.
The reason behind the correlation between good monsoon rains and gold prices is that a good monsoon season usually leads to good agricultural produce. This prompts farmers to spend a portion of their earnings in buying gold for a multitude of reasons and also as a safeguard if crops were to fail in subsequent harvesting seasons.
Impact of currency fluctuations and import duties on gold prices
Other than these factors, one should also consider the impact of currency fluctuations and import duties can have on gold prices. Since gold is traded in USD in international markets, any fluctuations in either USD or euro may impact buy gold britanniaprices in UK. As an example, if euro were to weaken against USD, then chances are that the value of gold will increase in euro. UK also imports a lot of gold, given the fact that it is one of the largest consumers of gold and 89% of the demand is fulfilled through import. Therefore, import duty also plays a vital role in determining gold prices in UK.
Impact of geopolitical factors and uncertain outlooks on gold prices
As gold is considered to be a relatively safe investment by investors, the demand and subsequently the price of gold tends to increase during times of political instability, geopolitical turmoil or general economic slowdown. Other asset classes tend to witness a fall in their respective values during turbulent times which is generally not the case with gold, making it a suitable commodity to park funds during such times.
Impact of gold reserves on gold prices
Let’s finally come to the impact of government gold reserves on gold prices in UK. The Reserve Bank of UK along with the central banks of multiple other countries hold gold reserves along with currency. So, whenever such reserves start procuring more gold, the prices of gold tend to increase due to the resultant increase in the demand of gold.