6 Determinants of Gold Trading Price
Investing in gold is a good way of earning extra money. This is based on the rise and drop in gold prices in the market. But do you know what determines those prices? What if you always had an idea, or had some facts so as to make unbiased decisions? This article will explain the variants that affect gold trading prices.
Let’s consider the macroeconomic variants and the best way is to do a PESTEL analysis.PESTEL analysis is an acronym that captures all the major macro variables. It stands for:
- P-Political
- E-Economical
- S-Sociological
- T-Technological
- E-Environmental
- L-Legal
Political
As much as gold is the financial asset with the least government interference, political forces are still in play. In countries where gold is mined, the government controls the activity by what they call gold royalties. Depending on what they want to achieve, the government can either hoard or dishoard gold. This will directly affect the supply and price of gold. To be on a safe side, it is good to be researching on government policies concerning gold mining.
Economical
Gold is often looked at as a store of value, but it’s also a highly speculative asset linked to currencies and interest rates.
Since we are talking about trade, economic factors have the greatest impact when it comes to gold prices. Gold is a peculiar asset since it has an inverse relationship with the other fiat money. The depreciation let’s say of a dollar causes an appreciation in the value of gold.
Inflation, demand, and supply are the other major economic factors that affect gold’s pricing. Fundamental and technical analysts are the financial advisors that help in the determination of prices about economic variables.
Sociological
Social factors are the principle propelling factors responsible for the popularity of gold, as jewelry comprises the most major share in human consumption of the gold. This will have a direct impact on the demand and supply of it. Eventually, it will be among the many factors affecting/determining the price.
Technological
Due to its nature of malleability and bacteria resistance, gold has grown in its popularity in the industrial world. It is used to make alloys and biochemical catalysts. Gold is used as a drug to treat some diseases like rheumatoid arthritis among others. This has called to its demand which directly influences its price.
Environmental
Gold mining and the environment don’t go well with each other. Mining is a great land and air pollutant. It’s also a cause of earthquakes and risks to miners. Be sure this will cause a rise in its price when it comes to gold trading.
Legal
Gold mining cannot be done without compliance with government policies. This varies from country to country. Restrictions are done in the form of licenses as outlined in the state’s acts of law.
With the above analysis, it is easy to do your examination of the flow in gold trading price with fewer chartist consultations.
