Why Do Gold Prices Fluctuate?

gold bars, chart

Gold prices go up and down for a number of reasons. Despite the fluctuating price of this precious metal, gold remains a wise investment. If the US dollar was to lose its value, investors who chose gold would have little to worry about, while those with dollar-backed investments would lose. Regardless of the dollar’s value, gold remains a globally-valuable commodity. Read on to learn the most prevalent reasons for gold price fluctuations:

Gold Buying by Central Banks

When you see large gold price fluctuations the likely culprits are the central banks. In the past 20 years, central banks have been big sellers when it comes to gold. However, the second quarter of 2009 revealed an emerging shift. These central banks started to become net buyers rather than sellers. For example, China and India have been two of the world’s biggest gold buyers in recent years.

According to a 2014 report from USA Today, India holds 7.6 percent in gold reserves. Numbers are up from 2009 when India’s reserves were at 7.5 percent. However, they’re nowhere near the 20 percent seen in 1994. Experts believe India and other banks are rebalancing and diversifying, moving away from currency-based assets and turning to gold as an attractive reserve asset with very little risk.

Although China stated in 2009 that it would not continue buying gold for its reserves, citizens were (and still are) encouraged to buy gold. Other countries emerging as heavy-hitters on the gold investment scene include the Netherlands and Japan.

The actions of central banks can cause gold prices to go up and down. When the banks feel that their reserves are too low, they’ll buy. For the most part, gold is treated like a long-term investment rather than a trading tool.

Supply and Demand

Another reason gold prices fluctuate is due to supply and demand — a basic and fundamental principle of economics. Many experts believe that there is an inadequate amount of gold as compared to current demand. When demand exceeds supply, prices rise. When supply exceeds demand, prices drop.

Regardless of price fluctuations or even rising prices, gold is still a safe investment. Investors who choose to buy gold as a long-term investment enjoy the peace of mind that comes with owning a commodity that is globally valuable and easy to liquefy.

The Debasement of Currency

Currency debasement is yet another reason for the changes in gold prices. The reasoning behind this theory is simple. As a nation’s currency begins to lose value, investors clamor to buy more gold in an attempt to hedge against the loss.

Experts believe gold is the way to go, labeling the dollar as being “worth nothing.” Investment company founder Rick Rule predicted in 2009 that gold prices would rise as the dollar depreciates. If the United States economy tanked, investors who hold gold would be in a far better position than those who put their faith and their money in paper currency.

The Bottom Line: Gold is Good

It doesn’t matter whether you’re a conservative investor or a risk-taker — gold is the way to go. One of the safest long-term investments for investors of all disciplines is the gold IRA. Although gold prices may go up and down for reasons like those outlined above, gold is a solid investment now and for the future.

Sources:
http://www.nuwireinvestor.com/articles/5-main-factors-that-cause-gold-values-to-fluctuate-56471.aspx
http://www.usatoday.com/story/money/business/2014/03/22/wall-st-cheat-sheet-nations-gold/6709493/

Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.