Why Does the Price of Gold Increase?
Many factors can influence the price of gold. Like most other assets, the price that gold is sold for at any particular time is determined by the supply and demand for the asset. Numerous factors may influence this supply/demand. Let’s look at some of them:
Gold is considered to be a very good store of value. As such, it is in high demand during times of inflation. People consider it to be a store of wealth, something that will hold firm no matter how much currency depreciates due to its limited supply and history as a store of value.
Demand from major funds, especially Gold ETFs, can massively influence gold prices.
A fall in the supply can also cause the price to increase. The only supply of gold is mining, and the mining of gold has not increased in the last few years.
Demand for gold to be used in jewelry can also influence its price. India is one of the largest markets for jewelry and makes up a huge portion of the consumer demand for gold.
Industries that require gold can also influence demand (e.g. electronics). However, remember that gold has very few uses in industry. As such, the vast majority of it is simply held as a store of value.
When people expect the economy to take a downturn, gold demand increases as it is considered a stable asset, and thus a hedge against volatile assets.