Economics

Factors influencing price of gold



Factors influencing price of gold

Introduction

In modern era, gold is being viewed as valuable commodity that is being used as a source of long-term and short- term investment, and this has increased its overall usage in the country. Gold has not gained value in this era; rather in past this commodity was used as considered as an essential source of transaction with other countries (Klapwijk, 2012). For instance, during the end of 1973, majority of European countries allowed their exchange rate to rise ahead of the rate of dollar, however, was able to increase the value of gold against dollar and after that, this commodity was being used as an important saving tool of individual, and for central bank of the country.

Moreover, in twenty-first century demand and supply of gold has witnessed a rapid growth mainly because of its extensive use in personal and professional sector, but after introduction of innovative financial tools, this commodity is being primarily used for the purpose of storage or long-term investment (Toraman et al, 2011). Despite, of extensive growth constant fluctuation in the prices of gold has created a stir in the market, and has urged the authorities to determine the factors that influence the fluctuation of gold, and its impact on the business environment.

Discussion

Increasing unpredictability in the market, in global economic, uncertainty in global political situation has played a positive part in increasing the use in short and long-term investment. In recent survey conduct by the economic department of UK, it was observed that investment in gold commodity is expected to increase by more than 50 percent every year. On the other hand, it was observed that global gold market is vigorously performing as in past ten years on average 4,034 tons of gold has been transacted throughout the world. Numerous key players like mining companies, banks, risk management companies, professional and private investors, exchange rates companies, and others are involved in robust transaction of gold, and this could easily be observed from below figure1.

Figure 1: Distribution of above ground gold (Feldman, 2009).

The prices of gold

Increasing trend of demand and supply also plays an important role in determining the price of gold in the country. (Klapwijk), 2012 after analyzing the performance of over 100 companies explained that majority of these companies are involved in million level transaction of gold from mines to local customer. Further, it was observed that at the end of 2011, country total gold stock comprises of 50 percent of Jeweler, 12 percent of gold is being invested by private investors, 17 percent of gold is being used for official purpose and around 2 percent of gold is damaged or lost. On the other hand, a decrease of 0.9 percent was observed in gold fabrication in the end of 2011, further, manufacturing of gold also witnessed a decrease of 2.2 percent, and 3 percent decline was observed in the use of gold for the manufacturing of gold coins, and currency ...