Gold Makes the World Go Round

Just as it would for any other commodity in the market, the price of gold fluctuates with the demand and a supply for it. By far it is considered the most stable in terms of investment and the minute the economy looks shaky, the world turns to its investments in gold.

The supply of gold in the market comes from mines, gold that comes into the market for recycling and from the central banks in nations. The World Gold Council has determined that there are several new mines opening up and therefore there will be an uninterrupted supply of the commodity thus contributing to world supply. While for most countries the average hold by the central bank is around 10 per cent, in the United States, this figure stands at around 75 per cent. This assessment is by the World Gold Council.

Besides demand for the precious metal from the general public, gold is also used for industrial as well as scientific purposes. This alone stands for around 10 per cent of global demand. As far as the jewelry demand goes, this goes through constant ups and downs, depending on the market and season.

There are several reasons that affect the prices of gold and silver and most of these have to do with the economies of the world as well as political upheavals that are constantly happening. When there is a decrease in the supply of the money into world economies, the price of precious metals goes up. The minute there is more money in circulation, the price of gold comes down. At times like these people convert liquid assets into gold to ensure that their value remains stable over time. When the economy is deflated, prices of gold and silver go down and this is an indicator of how that particular economy is fairing. In cases of both inflation as well as deflation, the price of gold is measured against the value of the US dollar.

There are several reasons that affect the value of the US dollar. But one constant is that the prices of gold and silver depend on whether the value of the dollar is up or down. This simple reasoning is that when the dollar weakens, other currencies gain leverage and gold becomes cheaper for them. As they buy gold, the price tends to up. Moreover, internationally, the dollar is the reserve currency of the world. When an economy goes weak, its banks protect their interests and investments, buying selling dollars and investing in gold. This allows for the price of the metal to be pushed back up.