Will Gold Price Slump With The Increase Dollar Value?

Will Gold Price Slump With The Increase Dollar Value?

Although the dollar value hit an all-time low at the beginning of 2018 over the past five years, the value of the dollar is picking up now and is showing a promising upward trend. However, what does this mean for investors of gold? Before answering that, continue reading more to know the list of factors that affect the demand and value of gold.

Factors resulting in an increased demand value of gold

  1. Increases with Income – With more disposable income, the demand for gold will continue to rise. When people have more money to spend, they would not mind spending money on purchasing gold and storing it as an asset.
  2. Immune to Volatility – Many investors consider investing in gold as a good option to protect themselves from market fluctuations and volatility because they consider it the safest option.
  3. Increases in Inflation – Gold prices increase when there is inflation. This is because the value of fiat money drops during inflation, which encourages people to invest in assets that they can hold on to such as gold.
  4. Decreases with Deflation – When deflation happens, people curb their spending and as a result demand for gold drops, which ultimately decreases the value of gold.
  5. Decreases with Interest Rates – The value of gold will drop when there is an increase in the interest rates in a particular economy because this will mean that the interest rates on safer investment options such as fixed deposits will increase and people will be drawn to such secure options rather than investing in gold.
  6. Increases with Share Price Drop – When the market price drops, it is normal for people to invest in other safer options, one such being gold. It is no wonder that people tend to include gold in their investment portfolio, as this helps them to reduce the risk of their investment.
  7. Decreases with Geopolitical Factors – The value of gold is dependent on its value in other places across the globe. A war, flood, or any other unexpected natural or manmade disaster will, in turn, affect the economy of not only that particular country but also other places around the world.
  8. Increases with Limited Supply – It is expected that with no more possibilities to mine gold, the supply will become almost limited unless scientists find new ways to make gold. Until then, with limited supply and recycling of gold, the prices of gold are only expected to increase in the future.

Hence, it is only natural that an increase in the dollar value will send the gold prices for a toss. For one, an increase in the dollar value will result in a decrease in other currencies that will prevent people to invest in gold. Further, when dollar value increases, market prices increase as well. This will make people invest more in stocks and less in gold, resulting in a decreased value.