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Unveiling the factors driving gold prices and strategies for profit

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Unveiling the factors driving gold prices and strategies for profit

Gold prices fluctuate based on market demand. There are various situations that can lead to an increase in the demand for gold. These include central banks acquiring more gold, a decrease in interest rates, a decline in the returns of other assets such as forex, equities, and bonds, currency appreciation, inflation, and more.

Factors influencing the gold price

Supply and demand

The price of gold trading as an investment asset varies based on supply and demand. Gold prices increase in direct proportion to demand, and vice versa. A decline in interest rates, a decline in the returns on other assets like bonds, stocks, and FX, currency appreciation, inflation, and more can all lead to an increase in the demand for gold.

Conversely, when there is a decrease in demand and an increase in supply (as an exception), the price of gold decreases because of factors like a recession, rising interest rates, or the performance of other assets.

Jewellery market

The size of the jewellery market differs from country to country and has a direct impact on gold prices. The strength of a country’s jewellery market directly correlates with the demand for gold, resulting in fluctuations in gold prices.


Inflation is the increase in the cost of goods and services within an economy. Gold prices are impacted by inflation; and higher inflation causes prices to rise, while lower inflation decreases costs.

Inflation strongly correlates with the price of gold because individuals prefer to hold onto it at rising prices, believing it will generate wealth in the future and serve as a safe haven asset. Due to increased demand, gold prices rise and the asset becomes more valuable as a means of hedging against inflation.

Imports and taxes

Almost every continent in the world extracts gold. However, there are specific nations that excel at exporting gold, while others rely on importing it. Imports and taxes have a direct impact on the price of gold. Therefore, the price of gold in exporting nations consistently follows an upward trend and remains stable, while the purchasing price remains comparatively lower. Importing countries experience higher gold prices due to additional taxes and importing costs.

Central bank reserves

All nations’ central banks maintain reserves of gold in addition to paper money. The price of gold rises in tandem with the increase in worldwide demand for gold as the central bank adds additional gold to its reserves. Conversely, the demand for gold declines and its price drops when the central bank sells off its gold holdings and keeps less of them.

US Dollar

Because gold is valued in US dollars, the relationship between its value and its price is inversely proportional. Gold prices increase in response to a decline in the USD’s value and a decrease in the USD’s value.

This is also true because the US dollar is the most traded currency on the forex market, and investors switch to gold contracts for the difference when the USD does not yield significant gains. However, when the USD performs well, traders and investors switch to trading in USD, which lowers gold trading and the price.

The best times to trade gold for a profit

To trade gold effectively, one must have a strategic grasp of the ideal timing for entering and exiting the market. Understanding the optimal times for gold trading is crucial, as they are closely tied to peak trading hours, which are affected by global market sessions and significant economic news and events. These various elements contribute to the overall picture of trading possibilities for gold.