Gold is not produced or overseen by national governments, which means that it can be bought and sold with complete privacy and anonymity. That makes it a useful commodity for a variety of different reasons. It also means that gold’s price movements aren’t necessarily driven by the same factors as other financial assets.
What moves gold’s price?
Gold’s price is constantly on the move, due to a number of factors that affect levels of supply and demand. If gold supply drops and demand remains the same, its price will rise as demand outstrips supply. If demand drops but supply remains the same, gold’s price will fall.
Demand for gold can be affected by many factors, but there are two that are most commonly associated with movements in its price:
Geopolitical and financial uncertainty
Gold is often referred to as a ‘safe haven’, or ‘crisis commodity’. This is because its value is less tied to market or political factors than other assets. As traders flock to gold in uncertain times, its price often increases and it may outperform other investments.
The price of the US dollar
If the value of the US dollar falls against other currencies, traders will often buy gold instead. With all else being constant, this would see gold’s price rise.
The opposite is also true: if the US dollar is strong, then the allure of gold can diminish.