Gold is a commodity set apart from others due to its extensive history of holding steady or rising in value when times are challenging. Many other securities are threatened in a turbulent environment. This gives gold the label of a safe haven asset, a hedge against inflation in particular.
That doesn’t mean the precious metal is without rise or an investor won’t see fluctuations in price. Many variables contribute to its rise and fall. When you become familiar with these factors, you’re capable of better decision-making with your investment portfolio.
When looking at gold as an investment, some things to consider are the stability of the economic and political landscape, the existing geopolitical theater, and significant worldwide events all affect gold’s behavior and often lead to investors demanding more of the precious metal, driving up its price.
This is undoubtedly war affects gold prices globally. Despite the higher costs, investors flock to gold to stabilize their assets or take advantage of the safe haven in what becomes an uncertain and volatile financial market.
As an example, the demand for gold increased considerably at the forefront of the Russian invasion of Ukraine, where gold prices rose roughly 6 percent.
With the end of 2023 drawing near, the prediction for the price of gold with the current state of the world is that it could reach as high as $2500. That exceeds the all-time high it acquired in 2020. Those are only some of the predictions. Others are less optimistic.
What Factors Affect the Price of Gold
Ultimately, predicting the price of precious metals to within certainty is not possible. A wiser way to invest in gold is to consider the variables that drive the cost. When you become familiar with these factors, it allows for more educated investment decision-making. You’ll have an idea of if you should take the risk and when it makes sense.
The benefit of the commodity is that it’s finite, allowing security and stability when including it among diverse assets. The tangible investment can be exchanged for virtually any currency since it’s universally accepted.
It’s less volatile than other securities since it isn’t tied to a specific government body or a particular country. The precious metal has a long history of holding steady in value or rising when times are difficult, while other securities face considerable threats. That doesn’t mean it’s without risk.
Suppose you want to include gold as part of your investing strategy. In that case, you’ll need to take an active approach by monitoring the financial and economic landscape and paying attention to major international developments, all of which will drive the price. Here are factors that can impact its value.
The geopolitical theater
The price of gold has always been affected by the state of the world, whether there are geopolitical tensions, challenges in the economic and political landscape, or significant worldwide events.
Anything that causes financial market volatility and uncertainty will lead investors to turn to what they see as a safe haven; gold has that designation. In these turbulent times, the value will either hold steady or rise while other securities could be severely threatened.
Investors can rely on the fact that their investment wealth will be protected through challenges.
While gold prices can’t be predicted with any degree of certainty, investors can look back through history to see a consistency with the precious metal in times of war and other geopolitical tensions. Go here to learn about gold’s role as a safe haven during rising geopolitical tension.
The supply and demand
In 2020, gold saw an all-time high price point. A major contributor to that milestone was the worldwide pandemic, which disrupted the production of precious metals, including gold, reducing its supply, and making it more costly to acquire.
The price is greatly affected by the speed at which it’s repurposed or mined. Since the 2020 highs, operations returned to a more normal status, with the supply pretty capable of meeting the demand, allowing the prices to stabilize. Then, the bottom fell out in 2022 due to many factors.
Since that time, the price has steadily risen to where it is now, gradually approaching the point of exceeding its 2020 record high prices. Some analysts place the price point at roughly $2500 by the end of 2023 while others see a less optimistic future.
The short-term risks and other possible volatility
Investing in the short term is one factor that causes gold prices actually to fluctuate or become volatile. The precious metal is, as a rule, dollar denominated. When the US dollar is strong, the price of gold will go down, and the same is true when the dollar falls in value; gold will be vital.
Gold is more of a long-term asset that provides its greatest benefit over the long term.
When considering the option, a variable to think about also is real and implied inflation rates. Gold has a reputation for being a hedge against inflation. When inflation rates rise as high as they have been in the last couple of years, investors add gold to their portfolios to stave off the threat posed to their investment wealth.
High inflation isn’t an indication of the gold price, but it can help to secure your wealth.
The demand for gold as a commodity in various industries, including the technology and jewelry sectors, is high, thereby increasing its price point. For those investing in precious metals, these price increases will significantly and positively enhance an investment portfolio over the longer term.
Many factors can drive the price of gold. War is indeed one of the factors that will increase its value. People want to feel their assets are protected, and gold has a long-standing history of being a safe haven when there are threats to safety and security.
The optimistic outlook for gold prices by the end of 2023 is that it will far exceed the all-time high records that the prices hit in 2020, considering the strife seen around the world. Should you invest in gold through the good times and bad? It’s never let anyone down yet.