- Gold is considered a refuge value because its value normally increases in times of crisis
- The fixed price of gold is set twice a day by the London Gold Fixing
- The value may be affected by other factors.
Gold is considered one of the best investment assets, especially in times of crisis such as the one we are currently experiencing due to the COVID19.
The great stability is what makes its value increase year after year. Did you know that the price of gold reached its historical maximum last August with a value of 2,000 dollars per ounce?
But how is this value set and what factors influence this decision?
What is a fixed price or fixing?
You should know that every day the fixed price of gold in dollars is fixed twice a day: at 10:30 a.m. and at 5 p.m., according to London time. This price is determined by the members of the London Gold Fixing. This price, however, serves only as a reference, since many other factors influence it, as we will see below.
Supply and demand
Gold is a highly valued metal, as it is used in a wide variety of fields such as medicine, banking, silversmithing, technology or investment. In addition, large gold consuming countries like India or China can also alter its price at certain times and cause demand peaks due to their influence on the market.
Geopolitical events
As we have already mentioned, gold is considered a refuge value. Therefore, in times of instability due to international tensions or economic crises, the price of gold increases. Investors begin to be interested in this metal in times of uncertainty because it gives them security, when the physical money begins to lose value for the amount that exists in circulation.
The interest rate
Gold has a national interest rate that, when it increases, causes the price of gold to fall. The most important interest rate is the one set by the Federal Reserve in the United States and affects markets around the world.
The relationship with the dollar
Since the price of gold is fixed in US dollars, it can be affected by the value of the dollar itself: if the value of the dollar goes down, the value of gold goes up. And as you well know, the value of the dollar depends in part on the social and political circumstances of the United States.
This is all the information that will help you understand why the price of gold fluctuates and the determining factors.
