Gold price varies by its supply-demand. Naturally, the first question that comes to mind is “What is the factors affecting gold supply-demand?”. According to some experts, there are four major factors that affect gold prices. The change in these four basic factors will lead to changes in supply and demand, which will result in changes in gold prices, which is:
- Global Inflation
- Global Liquidity
- Global Geopolitical Risk
- Global Real Interest Rates.
Let’s dig some deeper insight:
Inflation is the indicator that measures the increase in the general level of prices with the simplest definition. In an environment with inflation, the purchasing power of the money decreases, for example, 2 meters of fabric last year, which we can take up to 10 lira. So in summary, as we mentioned earlier, money has a lowering effect on the purchasing power. That is why investors increase their gold demand to protect their money. It would not be wrong to say that in the environment where global inflation is present, there will be increasing pressure on gold prices.
Global liquidity and gold prices are directly proportional. As liquidity ratio increases, gold prices are expected to rise and gold prices are expected to decrease as liquidity ratio decreases. If we interpret this in the simplest way; get 10 kg of apple on one side, 10 pounds of apples on the other you can get 10 pounds el apples are still 10kg while all available money to 15 TL to get all of the apples you will have to give the entire 15 lira. In the first case, when the weight of apples is 1 TL, the weight of apples increases to 1.5 TL with increasing money (liquidity). I mean, if there is an increasing supply of money (liquidity) across the limited resource gold, the price of gold will rise. On the contrary, gold prices will move in a downward direction.
3.Global Geopolitical Risk
Gold is the indispensable investment tool of investors in terms of not only global geopolitical risks but also all risks that may occur in the world. In the most remote countries of the world, it can be converted into cash, in the most developed countries. With the fact that gold is so convertible, we can say very clearly that the address of any global risk avoidance will be gold. It would not be wrong to say that global geopolitical risks and gold prices may rise in countries where the gold trade is high. With the simplest example, it is possible to see that even the smallest risk in the region is reflected in the oil prices, as the oil exports of Iraq and Syria, which are in the war now, constitute the most important part of the world’s oil exports.
4.Global Interest Rates
In its simplest definition, the real interest is the cost of the retained money. If you have 100TL money you have not invested in your bank account for 1 year, if you think that the real interest rate is 5%, your money will actually lose 5 TL. I mean, the cost of keeping your money is 5 TL. However, if you invested 100 TL in the rate of 5% real interest rate would be 5TL. As a result of Gold’s own structure, any periodic returns do not provide investors with any interest gains, except for the change in market prices. In a period when real interest rates are in an upward trend, investors prefer investment instruments instead of gold. As a result, it will not be wrong to say that gold prices will move downwards.
These four factors are among the main reasons that directly affect gold prices. Contrary to what most of us know, ”summer is coming, everyone will get gold, gold prices increase“ is absolutely not true.