Factors affecting gold price
With several factors affecting gold price, consumer demand, inflation, interest rates, geopolitical factors, a weakening dollar, among others are few major factors controlling the prices. When gold is traded in the international markets, its price depends on the dominant currency, i.e, US Dollar, in the trading markets. When you buy gold online, the Live Gold Rates are generally updated from time to time but in physical markets, the prices vary from one country to country.
Countries have different import and export policies for goods and that is the reason policies are designed accordingly which in turn results in different rates among the neighbouring countries and of course other countries. Other factors affecting changes in the gold price are storage and ordering cost, physical delivery cost, taxation and conversion of price from US Dollar to local currencies.
Let’s take a look into this in detail:
- Inflation is a dominant factor: Countries often hedge gold against inflation rate. This is the case mostly with developed economies where several countries hedge gold to balance their disturbed economy due to inflation. The gold rates normally go up with high inflation rate and the countries that hedge gold against inflation avoids facing recession. It helps in stabilizing the position of the country in the international community. On the other hand, few developing countries have increased inflation rates which might have been affected by the decreasing foreign currency rate. Policy-makers frame economic policies according to the needs of a country and try to bring out the maximum result in developing the economic scenario. That’s why gold ratvary from country to country.
Source: Bloomberg, U.S. Global Investors
- Import tax and duties: Countries generally tax to pull the investors as well as investors to contribute to the national economy. Some taxes are directly imposed whereas others are indirectly imposed. It is no surprise that gold as a premium commodity brings more revenue to tax officials and economic stability. Hence, gold rates are subject to increment along with import tax and duties. Every country has its separate Income Tax Ordinance and guidelines to levy tax over the import of global commodities, mostly homogeneous. And gold is also one of the durable commodities which are taxed differently in different countries. That’s the reason Live Gold Rates differ from country to country.
- Central banks play a major role: The bank of any country has a dominant role to play in setting the gold price as it helps in hedging the gold against central reserves. Along with these, gold mining companies manipulate gold prices for the fact that they are left with a large reserve of raw and refined gold. Gold is internationally traded but it is treated in a different way in case of national boundaries. The Central Banks may also buy more gold in case they find a decrease in the gold reserves against their holdings.
- Overall gold production: Major players like China, South Africa, the Russian Federation, Peru, Australia and the US are strong contenders in worldwide gold mining. The overall production of gold in the world also affects the gold price. According to GFMS, gold mine production had a record rise by about 3% in 2010 to about 2,652 tonnes. The fact that gold is more challenging to get access to raises several problems – miners being exposed to hazards and environmental impacts. Ironically, it costs more to get less of gold, hence adds to the production costs, resulting in hike in gold prices.
- Wealth protection: Because of its enduring value, more people tend to invest in gold at times of economic uncertainty. Thus, when actual returns on equities, bonds and real estate fall, people tend to rely more on investing in gold which drives its price up. Gold can be seen as a protection at times of political stability as well. As mentioned before, gold can be used as a hedge against any instability in the market, be it currency devaluation or inflation or deflation.
The demand for gold will continue to grow in the future. As demand for gold, the amount of gold in central banks’ reserves, the value of the US dollar and other factors keep affecting the price of gold. Finserv MARKETS facilitates buying, selling, and delivery of gold just one click away. Finserv MARKETS allows you to choose to redeem and have the order delivered at your doorstep.
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