FACTORS THAT INFLUENCED GOLD PRICE

1.   Value of U.S. dollar

U.S. dollar is the main currency involved in international trades. Dollar strength and gold price have inverse relationship. If the dollar is strong, the price of gold will decrease as more people tend to invest and trade in dollar.

2.   Central Bank Reserves

Federal Reserve Bank of New York

Central banks hold paper currency and gold in reserve. Any factors that result in instability to central banks will cause people to buy more gold rather than keeping paper currency.

3.   Monetary Policy

Interest rates (controlled by Federal Reserve) influenced the price of gold. Decrease in interest rates would entice people to flock to gold as bonds and stocks offer nominal gain and vice versa.

4.   Supply and Demand

       a. Supply

• Mining produce 60% of gold in the market annually
• Recycled gold



Gold Mine

• Central banks and international organizations gold transactions

       b. Demand

• Jewellery – majority of demand is in this sector
• Manufacturing – as gold is a efficient electrical conductor, it is used in solid state devices such as cell phones



Electronic Circuit containing Gold

• Investments – gold has negative correlation to stocks & bonds. This renders gold as a good wealth protector and usually placed as part of portfolios.

5.   Inflation

Inflation is an increase in general price of goods and services. As inflation increases gold prices also increase. People believe that gold can protect their wealth and so more and more people will exchange their paper currency into gold.

6.   Crude Oil Price

BLUE=GOLD, ORANGE=CRUDE OIL

Like gold, price of crude oil is determined in U.S. dollar. As crude oil price increase, gold mining cost also increases which will hike the gold price.

7.   Exchange Rate

GOLD PRICE (YELLOW) & EXCHANGE RATE (USD/MYR) 10-YEAR PERIOD  OVERLAPPED
SHOWING INCREASE GOLD PRICE TREND

As gold is dollar-denominated asset, exchange rate plays an important role in determining the gold price for investors of other currencies such as Malaysia. As Malaysian Ringgit depreciates relative to the US Dollar (ie. increase in exchange rates) the gold price will be amplified
 .

8.   Political Stability

If the government or financial markets were in the state of uncertain stability, people would tend to invest more in gold as they lack confidence and also anticipation of nominal profit gain.

Prepared by,
Wan Muhd Yusri/Public Gold Dealer/PG00067660
wanyusri@gmail.com
012-8871702