Some commodities seem to increase rapidly in value as if those high prices will never go down. However, even the most stable commodities can experience sporadic fluctuation or experience dramatic lows, if only temporary. While gold is generally considered a sound and stable investment during the most unpredictable of times, there are tangible reasons why this is the case.
Why Does the Value of Gold Matter?
For much of human history, the most popular investment anyone could make was in gold. But if you’re thinking of buying gold today, it is critical to understand what factors drive its value before deciding whether it is the right option for you. With this goal in mind, here are a few of the most critical factors that contribute to determining the price of gold in the global market:
Demand, Scarcity and Production
The market demand and availability of any commodity will always have a significant role to play in determining its value. Like any commodity, there is only a certain amount of gold available to purchase at any time, and the relationship between availability and demand helps set the price.
As newly mined gold is added to the global market, the availability is also increased; this can lower the price of gold even if demand from places like jewellery manufacturers and new investors remains high.
Gold Reserves in Central Banks
Central banks for nations or collective nations hold legal tender and gold in reserve. The more that these banks shift their monetary reserves from paper currencies to gold, the higher the price of gold will rise. Given the historical trust once put on gold as a stable investment, many nations own large quantities of gold in their central banks, as in the case of the United States gold reserve at Fort Knox.
Value of the Dollar in America
Given that the price of gold is measured in U.S. Dollars, the value of American currency plays a direct role in determining the value of gold. When the value of the American dollar is low, the price of gold tends to be higher. Likewise, when the American dollar is high, the price of gold tends to lower.
Investing
About 29% of the total demand for gold throughout the world is tied up in investments. Given the reputation that gold has as a stable investment, many private investors are still interested in buying gold. There are also exchange traded funds (ETF) that represent mining companies or actual gold that can be bought on a stock exchange.
The Case of Dentists
You may also be interested in learning why the price of gold fluctuates if you own items made of gold and are interested in determining the best time to sell them. For example, if you are a dentist, you can get paid for your dental scrap that is leftover from restoration work. In this case, you’ll want to hold on to such materials until the value of gold and other precious metals like
- Aluminum
- Palladium
- Silver
which may be present in dental scrap will earn the highest value. Then you can take these items to a company that can strip the valuable metals and refine them for resale.
It is well-known that humans have valued gold throughout history. While the objects manufactured out of gold change between cultures, the main idea that gold is precious almost always remains consistent. If you’re a dentist that is not already collecting your dental scraps, get in touch with a company that specializes in refining such materials to find out how you can earn extra money by selling your gold.
