Anyone who is interested in trading gold would no doubt also like to know more about the factors that influence the gold markets. In what follows we will briefly discuss some of the more important factors.
Factors that Influence the Gold Markets - Supply and Demand
As with virtually any other commodity, the price of gold is reliant on the interplay between supply and demand.
For example, anything that hinders or reduces supply can increase the price of gold and similarly anything that causes an increase or decrease in demand for gold will also affect the price.
Factors that Influence the Gold Markets - Supply Factors
South Africa is one of the largest gold producers in the world. If something should disrupt the supply of gold from that country, it will almost inevitably lead to an increase in the price of the metal.
Such disruptions could come from anything such as political upheaval or power cuts to a natural disaster or a mining accident.
On the other hand, some countries, such as the US and Russia, could affect the supply of gold by selling some of their gold reserves.
If such a country decided to sell a significant portion of their stock on the open market, it could flood the market with extra gold and put downward pressure on the price.
In addition, a sizeable new discovery of gold, or a new refinement process, could also increase supply and so weigh on the price.
Factors that Influence the Gold Markets - Demand Factors
Some metals, such as platinum, copper and silver, have a large industrial and commercial demand in addition to any aesthetic / ornamental value.
By contrast, one of the biggest demand factors for gold is derived from the fact that it is used as a store of value, a safe haven, in times of economic uncertainty.
As a result, the gold spread betting market can often perform at its best when traditional safe havens, like the Japanese Yen, are performing badly.
Some would suggest that the more uncertainty there is in the global economy, the better for gold, since investors see this metal as the ultimate safe haven investment.
Since September 2008, the gold price has more than doubled in a period where the US and world economies went through some of the toughest financial times in the last 80 years.
Factors that Influence the Gold Markets - The Role of the US Dollar
For various reasons, such as inflation and large scale quantitative easing, the value of the US Dollar has declined against other currencies over the past few years.
The price of gold is generally quoted in terms of its value per Troy ounce in US Dollars. Therefore, any weakening of the US currency will increase the relative price of gold in Dollars, whilst a strengthening of the US Dollar can negatively affect the price of gold.
Factors that Influence the Gold Markets - Metals Spread Betting Comparison
Gold
Silver
Copper
Other Metals?
Metals spread betting markets may also be available through other companies. Notes.
Note - Spread Betting carries a high level of risk to your capital and you can lose more than your initial investment, it may not be suitable for all investors. Ensure you only speculate with money that you can afford to lose and that you fully understand the risks involved and seek independent financial advice where necessary.
'Factors that Influence the Gold Markets', Feature by D. Jones, last update: 17-Aug-11
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