As someone who is personally investing in gold for the better part of a decade, I’ve seen a lot of different factors emerge that will invariably affect the price of gold.
Only after you’ve identified these factors for yourself can you begin to see a correlation between them, so if you’re new to gold, this post is for you.
Gold Production and Sustaining Costs
It is estimated that there is approximately 165,000 metric tonnes of gold in the world’s supply, and of that 2,500 metric tonnes of gold are produced each year. In the past the cost of acquiring this gold was not always made fully transparent to investors, and now there is impetus by several leading mining companies to declare “cash costs” to investors in a new way. The new measure is called “all in sustaining costs” aka AISC, and is intended to enhance transparency for investors.
Supply, Demand, and Instability
Gold has already been an investment mainstay for over 5,000 years, and its value remains fairly stable over time. While it is susceptible to fluctuations as the price of gold is impacted by money supply, cost of production, comfort level with how much we trust our bankers and the political/financial/ecological spectrum. In any case, when the demand rises – so does the price of gold itself.
Governments are large gold buyers, and they have been buying a lot of gold for the last few years which has been driving up the price of gold. It’s incredibly rare and unheard of that a government ever floods the market with gold, driving down its price.
When interest rates are good, people often invest where they can get a much higher rate of return. Gold does not pay interest like treasury bonds or savings accounts.
The Almighty American Dollar
When the American dollar (USD) is strong, gold is weak. When the US dollar is weak, gold is strong. This inverse relationship too is the result of a majority making investments in which they can get short term gains at a higher rate of return for a limited period of time.
With any global crisis, the demand for gold climbs and so does its value. Gold has become incredibly popular in an era of environmental collapse, a high unemployment rate, failing infrastructure, political instability, and a steady stream of wars.