Gold has always been called ‘the barometer of fear’. People turn to gold and bid the daily gold price up when they are nervous about the economy. Inflation and Deflation are the two main things that make people anxious. But there are other fundamental and psychological factors that move the daily gold price to a large extent. Let’s take a quick look at some of the factors which play a role in affecting the daily gold price value:
Monetary policy: The monetary policy is, in fact, the biggest influence on gold price. This is controlled exclusively by the Federal Reserve. Opportunity cost is a factor whereby interest rates have a huge influence on gold prices. It is when you give up a near-guaranteed gain in an investment for a greater gain in another. This leads to the loss of money whereby making gold an attractive investment opportunity.
Economic Data: The Federal Reserve’s monetary decisions can be based on economic data like job reports, wage data, manufacturing data, GDP growth which can, in turn, affect the daily gold price. The economy of the US is very strong, so low employment rate, job growth, and manufacturing expansion have a tendency to push gold prices lower.
Supply and Demand: Something as simple as supply and demand can influence the daily gold prices as well. The increase in demand or low supply of gold will put up the price of gold and vice versa.
Inflation: The rising price of goods or inflation has the ability to impact the daily gold price. Higher levels of inflation tend to hike up the gold price, whereas with lower levels of inflation the price of gold also drops.
Currency movements: As the price of gold is dollar dominated the movement of the US dollar is another strong influence on the daily gold price. The price of gold shoots up when the US dollar rate falls; this is due to the rise in currency rates all around the world.