The price of gold fluctuates based on a combination of supply, demand and buyer perceptions and behavior. But unlike paper money, the supply of gold doesn't change much over time, so its value is relatively constant. As a result, gold is often considered a hedge against inflation and is often used to back up an IRA. Investing in an IRA backed by gold can be a great way to protect your financial future. As inflation increases, so does the price of gold.
Like all markets, gold prices are subject to the forces of supply and demand. When it comes to gold, supply is affected by trade trends and by mining companies that extract more gold than they can put on the market. One of the key factors affecting demand is the current market sentiment on inflation. When inflation rises, the value of the dollar falls, and some investors flock to gold in the hope that it will serve as a stable store of value.
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This statistic is not included in your account. The dollar is likely to drive up the price of gold due to increased demand (because you can buy more gold when the dollar is weaker). Potentially, if current gold reserves were sold, downward pressure on their price could cause gold to flood the market and push prices down. Gold also tends to move in the opposite direction of the stock market, so investing in gold can help diversify your portfolio.
Just as the price of gold peaks during times of inflation, deflation tends to push the price of gold down as the pound strengthens and investors regain confidence. Research shows that gold prices don't correlate well with inflation, so when inflation rises, the price of gold won't necessarily skyrocket. Although officially gold fixing is used to decide contracts between members of the London bullion market, it is unofficially recognized as the reference point used to set the price of gold around the world. According to the World Gold Council, 60% of the world's current gold reserves are held by the governments of the United States, Germany, France, Switzerland and Italy.
Despite the fact that countries such as India and China consider gold as a store of value, people who buy it do not trade it regularly (few pay for a washing machine by handing over a gold bracelet). Therefore, gold prices may be affected by the basic theory of supply and demand; as demand for consumer goods such as jewelry and electronics increases, the cost of gold may increase. Some forces affect the supply of gold in the broader market, and gold is a global market for commodities, such as oil or coffee. The following chart shows the price of gold since 1968, with some notable events in the gold market.
Another example of the impact of demand on the price of gold is in 2002, when Chinese citizens were granted the right to buy gold bars for the first time since 1949...