The price of gold is always a hot topic of discussion, especially among investors and collectors who have an affinity to the precious metal. There are numerous factors that influence what happens to the spot price of gold. We often see the daily price of precious metals go up or down based on minor economic reports such as quarterly sales and unemployment rates. However, if you are a serious investor who is interested in investing in gold for the long term, it is important to avoid the temptation to focus on the daily cycle, and instead look at the “big picture” of what major factors influence the long-term trend of gold price. Most of these factors indicate that the price of gold is going to go up in the long term. Let’s look at a few of the major influences on the price of gold.
Value of the U.S. Dollar
A weaker U.S. dollar generally has an inverse relationship with the price of physical gold. When the dollar is strong, it will weaken the price of gold, and when the dollar is weak, gold has shown to rally, driving the price of gold higher. When the value of the dollar is weak, people have a tendency to invest in precious metals like gold as a hedge against future inflation.
As you would expect, the jewelry industry is still one of the largest consumers of precious metals. Gold has been valued by nearly every civilization for thousands of years as the ultimate symbol of wealth. Two of the countries that have shown steady growth in their economies are China and India. Both countries are enjoying strong economies in comparison to the past decades, and the people are very attracted to luxury items that were out of reach only a few years ago. Of course gold is one of these items, and this has a direct supply and demand effect on the price of the metal. Gold is a luxury that the emerging economies of the world want more of.
Gold and silver are used in almost all types of electronic devices produced today. Global positioning system units, cell phones, calculators, and countless other small household electronics use gold. This is only expected to increase over time, as more developing nation’s increase their wealth, and the people are able to afford the simple devices that we have all gotten so accustomed to in more developed nations.
It is often said that gold is a “safe haven” for investors during uncertain times. When the stock market is tanking, home values drop, and other investments are hemorrhaging money, gold generally performs very well. This has been seen repeatedly over the past several decades, as times of economic slowdown and weakening consumer confidence have repeatedly shown a healthy rise in gold price.
Gold Production Cost
The cost of extracting gold from the earth has changed dramatically. In the early gold rush days, it was not unheard of for miners to be able to recover several ounces of gold per day just using simple tools like a shovel and a gold pan. Gold deposits were found with limited physical effort when compared to some of the mines in operation today. Most large-scale mining companies today must invest millions of dollars, and thousands of hours into exploration before any gold is even extracted. Underground hard rock mines today have high risk and require years to develop, and additionally have to deal with planning and permitting requirements that were not needed years ago. Extraction has become more and more costly as a result.
Learn more about Gold Mining
There is no doubt that the human race will remain attracted to gold. It has held value for thousands of years, and will certainly remain valuable for many years to come. So will the price of gold go up? This is the question that gold investors always want to know, and without a crystal ball there is no way to be certain. However, with the recent trend of the U.S. government to ignore the most serious problems this country faces, choosing instead to “kick the can down the road” on issues like our skyrocketing national debt, many knowledgeable economist expect the price of gold to continue climbing. European debt issues and instability in the Middle East all have favorable influences on gold prices. With rising energy cost making gold production more costly, along with smaller emerging economies around the world finally being able to afford jewelry and electronics, there is a strong case for gold investment.
(This article is for informational purposes only. All investments have risk.)