The key components of fluctuating gold prices include many factors and variables. When people start to lose confidence in their government or in the financial market, gold prices often rise, which is why gold is usually referred to as a crisis commodity. A global crisis or world events can also have an impact on gold prices as it is seen as a safety net when the economy is rocky. Inflation is another reason for the fluctuation of gold prices as the actual value of what gold can buy is more likely to stay stable in the long run even though currency values may fluctuate.
Gold is a solid investment to make as it is low-risk and will stay valuable when paper currency value declines. The value of the dollar along with central bank instability are also factors contributing to fluctuating gold prices. When the U.S. dollar is strong, selling gold may be more difficult, but it can also be seen as an opportunity to buy. This is also seen with central banks as some investors may want the security of having physical gold rather than relying on the bank, increasing the value of gold as well and further validating the term “crisis commodity.”
Interest rates also play into the fluctuating gold prices as current gold prices are reflected by the increases and decreases in interest rates. Lower interest rates means a higher attraction to gold. Although gold can be seen as a crisis commodity and safe investment, it is also very valuable for jewelers and other certain industries. More than half of the demand for gold comes from jewelry and another 12% of the demand for gold is generated from industrial applications. Gold is used by manufacturers in various devices such as electronics, computers, GPS systems, and medical devices. There will always be a need for gold, which will cause the price to fluctuate frequently, but it will still be an important staple in the economy.
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