Gold Rates Fluctuation – Why Gold Is On A Roller Coaster Ride

“Change is the only constant in this world” – This is an extremely popular saying which holds true till this day. No matter how hard we strive to keep things stable, the universe will always find a way around it. Nothing in this world stays the same for long, especially commodities, as what is valuable today might be junk tomorrow. Gold has managed to hold on to its position as an important metal for centuries, but even the mighty golden treasure is not immune to change.

Fluctuating gold rates are a common trend across the globe, changing on an almost daily basis. It is not rare to see extremes when it comes to gold rates, extremes which evoke a range of emotions, ranging from happiness and joy to sorrow and despair. Gold rates have been on a roller coaster ride in the last few months, reaching great highs below falling to extreme depths.

It is common for us to wonder why gold rates fluctuate, for gold has been around for centuries and survived the test of time. Shouldn’t it be immune to fluctuations and other lowly considerations? Well, it’s not, gold is just like any other commodity today and there is no guarantee when it comes to its prices.

So why do gold rates fluctuate? Here are some reasons which could shine some light on this.

  • Central Bank Actions Gold is perhaps the most stable investment (in terms of survival), which is why every country has a gold reserve, managed by the central bank of such country. Any decisions taken by a central bank regarding their gold reserves can have an impact on gold rate. For example, China’s decision to offload some of its gold reserves in the market resulted in a huge drop in gold rates. Similar actions by other central banks can cause gold rates to fluctuate like the weather in an equatorial forest.
  • Government policies – Government policies can have either a direct or indirect impact on gold rates in a particular country. Policies of major economic players can have implications on global gold rates as well. For example, an impending decision of the United States Government to cut interest rates caused a huge change in gold prices across the globe, sending rates crashes even though it was just a tentative thought. Similar actions by major gold producers can have an impact on gold rates across continents.
  • Demand and Supply – We live in an economic environment which survives on the demand and supply chain. Gold, being a natural resource is available in only a few places and production of gold is limited to its availability. There is a huge demand for gold from across all quarters, but limited supply ensures gold rates play a hide and seek game. For example, China’s recent decision to offload gold into global markets inundated it with gold, which meant there was a surplus supply and low demand, pushing down gold rates.
  • Investment Trends – Gold has often been considered as the safest investment option, but with new investment opportunities opening up people have started experimenting. Gold does not offer extremely high results and the lure of high returns has made investors turn away from it, which have led to fluctuating demand and supply, in turn affecting prices. Changing investment needs can see gold prices fluctuate on a weekly basis.
  • Currency changes – Gold is generally traded on the international markets, in global currencies, with the US Dollar being the most popular currency for trades. Any change in these currencies in their local nation can impact how gold rates trade internationally, either pushing up prices or burying them. Traditionally, gold rates are inversely proportional to the strength of the US Dollar, with prices picking up when the dollar is down and vice versa. Changes in other currencies too can have an impact on gold rates, though these might not be evidently visible.
  • International Relations – International relations can play a major role in gold rates fluctuating. Gold is often considered as the “crisis metal”, having the ability to maintain its relevance even during wars and geo-political crisis. Strained international relations between gold producers and other important nations could push prices higher, whereas good international relations between such nations could bring down prices.

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