Understand what moves the price of gold

The price of gold is determined by supply and demand. There are a huge range of factors that can impact the market price, including:

Global demand

Since the 1970s, the demand for gold has quadrupled every year – driving up the gold price. Gold is used all over the world for a variety of reasons, such as jewellery, technology and as a value store for central banks and investors. In fact, jewellery demand accounts for roughly 50% of the global demand, while 29% comes from exchange traded funds (ETFs).1

A large portion of gold demand comes from middle-class expansion in India, China and South-East Asia.

Mining production

The rate at which mining companies produce gold is declining, as it’s estimated that most of world’s gold supply has already been dug up. Production declined by approximately 26% between 2011 and 2019, because companies have cut down on exploration to preserve cash.2

To find new gold supplies, scientists have begun developing technologies to detect previously unreachable gold sources, and even exploring the possibility of mining in outer space.

Although there is a finite supply of gold – as it cannot be grown in the same way as some other commodities – what gold there is will always remain in circulation. This means a lot of gold is now recycled to continue to meet demand.

If demand continues to rise and supply continues to fall, gold’s price will rise.

Interest rates

When interest rates rise, gold’s price tends to fall because investors turn to stocks and fixed-income assets that will earn them capital.

Conversely, when rates fall, the price of gold rises as economic uncertainty causes investors to turn to gold as a safe haven to protect their wealth.

The US dollar

Gold and the US dollar have a complicated, but usually inverse, relationship. When the dollar falls, investors looking for an alternative store of value often rush in to buy gold, driving up its price. A falling dollar also tends to increase the value of other currencies, and that greater buying power can increase the demand for gold that was previously unaffordable.

(update 2024: is that the case anymore??)

Financial stress and political insecurity

In periods of financial stress and political instability, gold is often seen as a safe-haven investment as it tends to retain its value when other markets fall in price.

For example, during the first three months of 2020, gold prices increased by 13% due to fears about the impact of coronavirus and the following lockdowns on the economy.