What Causes Gold Prices to Fluctuate so often?

At Texas Gold and Silver Buyers of San Antonio, we feel that the Precious Metals Market, and all of the inner workings and harder to understand information associated with the Precious Metals Market, should be transparent to all of our Customers and Future Customers.  We want our Customers and Potential Customers to be armed with all the information possible so they can make an informed decision when selling their Gold, Silver, Platinum and Palladium items.  This is for informational purposes only and we cannot guarantee or give any set in stone financial advice, but we can give information and indicators for you to study up for yourself and make an informed decision.


Gold is utilized as a gauge on value for currencies all over the globe. The price or value of gold is commonly stated as a currency (monetary) value, most often in U.S. dollars, and the price of gold can and will fluctuate with market conditions. At Texas Gold and Silver Buyers of San Antonio, we often are asked what influences the price of gold in the current marketplace. Below we will highlight ten significant influences on gold price fluctuations that any investor, or person looking to sell their Gold and Silver should understand.  Many times these factors can somewhat or in many cases precisely predict what the Price of Gold and Silver may do.  We can't guarantee a clear map to understanding what the Prices may do, but we can certainly provide proven indicators for you to be able to make an informed decision.

Global Crisis

1. Because gold prices tend to rise when people lack confidence in governments or financial markets, it often gets called a crisis commodity. World events often have an impact on the price of gold because gold is viewed as a source of safety amid economic or geopolitical turmoil. For example, the price of gold spiked right after the Russians moved into the Ukraine as people became uncertain about geopolitical stability in the region. In other cases, military action may actually increase reassurance with geopolitical situations. For example, the gold price softened at the beginning of Gulf War I. The bottom line is that political chaos equates to more interest in gold as a safe haven.

Inflation

2. A common reason cited for holding gold is as a hedge against inflation and currency devaluation. Currency values fluctuate, but gold values, in terms of what an ounce of gold can buy, might stay more stable in the long term. Because gold holds value outside of politics—it is valued the world over—gold is attractive as a low-risk, solid investment in the midst of floundering currencies. Let's not forget Gold and Silver are the earliest forms of "money" and have always held intrinsic value almost since the beginning of time. Investors may feel encouraged to buy gold when they believe the value of their paper money will decline. 

Value of the U.S. Dollar

3. The U.S. dollar is still the world’s dominant reserve currency, making it one of the main currencies that different countries hold for international trades. The price of gold and the strength of the dollar have a pretty clear inverse relationship; when the dollar is strong, gold is weaker, and vice versa. For example, between September 1 and September 10 of 2014, the U.S. dollar index rose by almost 2 points, and this softened the market for those selling gold. On the other hand, people buying gold may see a strong dollar as a buying opportunity, and that could provide some price support.

Central Bank Instability

4. In the U.S., the Federal Reserve is the central bank. Most countries have central banks, and other dominant ones include the European Central Bank, the Bank of Japan, and the Swiss National Bank. Bank failures and irregular economic policies make buying gold seem like a safe haven investment. Once again, people flock to gold when the current paper money system experiences uncertainty. Some investors prefer the physical and tangible security of holding gold when central banks are going through deficits as a protection of wealth. In turn, an increased demand drives up the value of gold even more.


Interest Rates

5. Gold does not pay interest like treasury bonds or savings accounts, but current gold prices often reflect increases and declines in interest rates. As interest rates increase, gold prices may soften as people sell gold to free up funds for other investment opportunities. As interest rates decrease, the gold price may increase again because there is a lower opportunity cost to holding gold when compared to other investments. Low interest rates equate with greater attraction to gold.

Quantitative Easing

6. Quantitative easing, or QE, refers to a central bank strategy of buying securities in order to increase the money supply. By flooding financial institutions with money, a central bank, like the Federal Reserve, hopes to encourage banks to loan more money and increase the supply of money. Other central banks that have employed this strategy include the Bank of England, the Bank of Japan, and the European Central Bank.
A larger money supply pushes interest rates down, which could encourage investors to buy gold because of the lower opportunity cost. When overdone, this tactic this can trigger inflation, another signal of a rising price of gold. The Fed actually announced that they had stopped QE on October 29th of 2014, and this may put some downward pressure on gold prices if interest rates rise and inflation slows, yet it could also be an opportune time to take advantage of lower gold prices when investing in gold.

Government Reserves

7. Central banks, like the U.S. Federal Reserve, hold both gold and paper currency in reserve. In fact, the United States and several European countries hold the bulk of their reserves in gold, and they have been buying more gold for these reserves recently. Other countries that hold gold include France, Germany, Italy, Greece, and Portugal. When these central banks start to buy gold in greater quantities than they sell, it drives gold prices up. This is because the supply of currency increases and available gold becomes more scarce.  In recent years China has been very secretive about their Gold Holdings, and have aggressively been purchasing Foreign Gold, presumably to place in their vast reserves of gold. 

Jewelry and Industry

8. Gold is not just valuable as a hedge fund and a safe haven investment; gold is also used in jewelry and industry. Over half of gold demand is from jewelry, and China, India, and the United States are three countries with the biggest demands. In some parts of India, gold is still regarded as a type of currency, a display of wealth, an important gift, and a hedge against bad times. This demand drives the price of gold in India up. Gold, both the color and the precious metal, is a symbol of opulence in China, and a booming Chinese economy means that more people have money to spend on China gold.
Besides jewelry, another twelve percent of gold demand is generated from industrial applications. Manufacturers use gold in all sorts of electronic devices, from computers to GPS systems, and medical devices like heart stints.


Gold Production

9. Only about 2,500 metric tons of gold get produced each year, compared to an estimated 165,000 metric tons in the entire world’s gold supply. To visualize this, imagine all of the gold in the world filling up three-and-a-half Olympic-sized swimming pools, and this year’s production forming a cube that is only about 16 square feet.
Even though new production might seem modest compared to the total supply, production costs can influence the cost of all gold in the world. When production costs rise, miners sell gold for more money to preserve their profits, and those higher costs also get reflected when it comes time to sell coins if they were minted from gold that was originally mined yesterday or thousands of years ago.


Supply vs. Demand

10. Archeologists claim that people have been mining and coveting gold for at least 5,000 years, and this precious metal is likely to remain precious even if the price fluctuates often. If you plan to buy gold, you need to understand that the price is impacted by production costs, money supply, comfort or discomfort with financial or geopolitical stability, the demand generated by jewelry and industry, and actions taken by central banks. Same holds true for when you are looking to sell your gold. In other words, gold is a finite resource and when global economic conditions make gold more attractive, gold demand increases, making the price of gold rise. But the actual value of gold remains fairly stable in the long run, and the price could simply reflect temporary uncertainty or simple currency fluctuations.

You have many choices in San Antonio when looking to sell your Gold, Silver, Platinum and Palladium items.  The bottom line for you, is where are you going to be treated fairly and get the most for your items? At Texas Gold and Silver Buyers of San Antonio, WE LOVE WHAT WE DO, WE LOVE OUR CUSTOMERS, and WE LOVE THE OPPORTUNITY TO SERVE THOSE IN THE SAN ANTONIO AREA!!  

​Give us a call at 210-441-2177 or come by our office today!  

​We are located at:

3435 Thousand Oaks, Suite 107, San Antonio, Texas 78247