time to invest gold long term ?
Why is the gold price increasing? What are the factors that affect gold prices? Let’s find out…
Gold has been one of the most traditional forms of investment. Before we knew about fixed deposits or stock markets or mutual funds, buying gold was one of the preferred means of investing.In recent months, gold prices have been on a constant rise. And after the crash in March due to the lockdown, they have managed to surge and cross the 50,000 mark in July 2020.
Demand and Supply
the demand and supply of gold, plays an important role in determining its price.every year, the amount of gold mined is not very high. And so, if the demand for gold increases, the price increases since the supply is relatively scarce.On the other handIn India, gold jewellery is integral to most religious festivals and weddings. That is why, during festivals and wedding seasons, the demand for gold increases, boosting its price.
Inflation and Interest Rates
When the inflation rates rise, the value of the currency decreases.Gold prices have an inverse relationship with interest rates. When the interest rates fall, people don’t get good returns on their deposits. Hence, they tend to break their deposits and buy gold instead causing an increase in demand and so the price.On the other hand, when the interest rates rise, people sell their gold and invest in deposits to earn high interest leading to a drop in demand and price.
Currency Fluctuations
In the international markets, gold is traded in USD.So USD falling Gold is increasing demand.
Government Reserves
The Government bank holds gold reserves. Based on its policies, it can buy or sell gold through the Reserve Bank . The price of gold can get impacted depending on whether it buys or sells more.
Why are Gold Prices Rising?
Many investors are concerned with the sudden surge in gold prices. Why is gold rising? Is this normal? Should they invest in gold at such high prices? Or, is this a bubble that will burst soon? To help you find answers to such questions, we have listed the factors that may have contributed to the surge in gold rates in recent weeks.On the other hand Economic slowdown causing investors to look for safe havens risky assets This increased the safe-haven appeal of gold.
Reduced Gold Mining
The primary factor that affects gold rates is the demand and supply equation. While the demand increased, gold mining activities were severely impacted due to lockdowns in various countries. This impacted the supply causing the prices to rise further.
High Liquidity
The Government also declared a lot of economic stimulus packages to pump liquidity into the markets. So, we had a situation where investors had money to invest but the stock markets were highly volatile and interest rates were falling. Hence, they started investing in gold that is known to be a safe investment during such times.
Whether you should invest in gold now? The answer depends on how you perceive the market. If you think that interest rates will continue to be low for a long time and businesses will take months before some sort of recovery, then gold as an investment can be a wise choice. On the other hand, if you believe that the economy will recover faster, then you might want to look at other investment avenues. It also depends if gold as an asset class fits in your investment profile. Ensure that you understand the entire picture before investing.
Happy Investing
Gold has been one of the most traditional forms of investment. Before we knew about fixed deposits or stock markets or mutual funds, buying gold was one of the preferred means of investing.In recent months, gold prices have been on a constant rise. And after the crash in March due to the lockdown, they have managed to surge and cross the 50,000 mark in July 2020.
Demand and Supply
the demand and supply of gold, plays an important role in determining its price.every year, the amount of gold mined is not very high. And so, if the demand for gold increases, the price increases since the supply is relatively scarce.On the other handIn India, gold jewellery is integral to most religious festivals and weddings. That is why, during festivals and wedding seasons, the demand for gold increases, boosting its price.
Inflation and Interest Rates
When the inflation rates rise, the value of the currency decreases.Gold prices have an inverse relationship with interest rates. When the interest rates fall, people don’t get good returns on their deposits. Hence, they tend to break their deposits and buy gold instead causing an increase in demand and so the price.On the other hand, when the interest rates rise, people sell their gold and invest in deposits to earn high interest leading to a drop in demand and price.
Currency Fluctuations
In the international markets, gold is traded in USD.So USD falling Gold is increasing demand.
Government Reserves
The Government bank holds gold reserves. Based on its policies, it can buy or sell gold through the Reserve Bank . The price of gold can get impacted depending on whether it buys or sells more.
Why are Gold Prices Rising?
Many investors are concerned with the sudden surge in gold prices. Why is gold rising? Is this normal? Should they invest in gold at such high prices? Or, is this a bubble that will burst soon? To help you find answers to such questions, we have listed the factors that may have contributed to the surge in gold rates in recent weeks.On the other hand Economic slowdown causing investors to look for safe havens risky assets This increased the safe-haven appeal of gold.
Reduced Gold Mining
The primary factor that affects gold rates is the demand and supply equation. While the demand increased, gold mining activities were severely impacted due to lockdowns in various countries. This impacted the supply causing the prices to rise further.
High Liquidity
The Government also declared a lot of economic stimulus packages to pump liquidity into the markets. So, we had a situation where investors had money to invest but the stock markets were highly volatile and interest rates were falling. Hence, they started investing in gold that is known to be a safe investment during such times.
Whether you should invest in gold now? The answer depends on how you perceive the market. If you think that interest rates will continue to be low for a long time and businesses will take months before some sort of recovery, then gold as an investment can be a wise choice. On the other hand, if you believe that the economy will recover faster, then you might want to look at other investment avenues. It also depends if gold as an asset class fits in your investment profile. Ensure that you understand the entire picture before investing.
Happy Investing
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