The price of gold mainly shifts between supply and demand in an economy and the investor’s behavior. This might even seem simple enough, but how these factors work together and influence the price shift for gold and silver is sometimes counterintuitive. For example, many investors think gold is an inflation hedge. They have some common-sense plausibility, as their paper money loses value as more is printed, while the supply of gold is relatively constant. As it happens, gold mining might not add much to supply from year to year.
Indeed, there are times of economic crisis when investors flock to the Prix de l'or. Whenever there is a recession, gold prices rise. But gold was already rising until the beginning of 2008, nearing $1,000 for an ounce before falling to under $800, and then, it bounced back, increasing as the stock market bottomed out. The gold prices also rose further, even as its economy recovered.
Unlike products with oil or coffee, however, gold cannot be consumed. Almost all of the gold that has ever been mined is still around, and much more is being mined daily. If so, anyone who does expect the price of gold to plummet over time since there has been more and more of it around.
Big market movers of gold prices
It has also been believed that the big market movers of gold prices are often done by central banks. When foreign exchange reserves are made prominent, and the economy constantly hums along, a central bank will always want to reduce the amount of gold it holds. That is because gold is considered a dead asset, unlike many bonds or money in a deposit account, as it generates with no return.
The problem with these central banks is that they are precise when the other investors aren't interested in gold and instead achat argent. Thus, a central bank always has the wrong side of the trade, even though selling back the gold is more precise than what the bank is supposed to do.
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