Sunday, April 14, 2013

Why The Spot Price Of Gold Is So Important To Traders

By Otha Sil


Gold is one of the most valuable commodities in the world today. It is therefore not surprising to know that people rely on this commodity as a means of exchange and for storage of wealth. Financial markets worldwide place great emphasis on the trading of this product among investors. There are various determinants of keeping up with the gold spot price . These factors can influence either rise or fall in the price that people charge for this commodity on the market. In most markets, the figure is set twice in each trading day.

Most governments have striven for the establishment of liberal markets. These are markets where the prices of various commodities are determined by the forces of demand and supply. Being the largest economy in the world, the USA has a great impact on the prices of most items in the world today.

Investors outside the USA feel the impact of dollar depreciation since it affects how the spot price of gold is calculated. According to research carried out in the past, a cycle exists in that when the US dollar depreciates, the price for gold goes down.

Those investing in areas outside the USA have witnessed that the dollar depreciation determines the changes they see in these prices. There is usually a cycle existing between these factors. When the dollar depreciates, the value goes down and therefore more investors will want to purchase the commodity at this low price. This subsequently cause increase in demand for the dollar and its value appreciates. The appreciation pulls up the price of gold.

When there is depreciation in the value of the dollar, the amount to be paid for gold also goes down. This causes an rush among investors who want to take advantage of the low cost of the product. Due to the increased demand, the price of the dollar will go up bringing up the price for gold.

The demand for jewelry produced using this precious metal also determines the prices, which people will have to pay for it. Jewelers depend on these metals to produce the highly valuable items whose demand is quite high in the market. People use these products as gifts and stores of value. Watches, wristbands and other ornamental items can be produced using this material.

Jewelers are among the main consumers of this metal. They rely on it for the production of ornamental items such as watches, bangles and other items. Their products are very valuable and therefore their demand is among the major factors that will determine how much suppliers will charge for it.

The general political climate in the world also has a great effects on these prices. As people expect different changes in the politics and policies enacted by different authorities, they will change their investment patterns. This will in return affect the prices of commodities such as gold and others. Government politics affect the policies of central banks of different countries and therefore changes the amount of mineral they will keep in their reserves.

World politics also have an impact on determination of these prices. Political leaders are responsible for formulation and implementation of various policies affecting economic performance of different states. Political instability has a major impact on performance of various economies around the world. The policies also determine the amount of gold deposits that central banks of different nations will hold in their reserves.

Environmental factors also have their effects on the prices and changes seen concerning this product. This is especially clear in countries that depend on agriculture as the major economic activity. Using various methods, professionals can be able to forecast the future conditions in the weather and if they will be favorable for investment. These forecasts will determine the changes in demand and supply of this commodity on the market and the amount that people will have to pay to acquire it.

Holding onto gold reserves earns investors interest at a variable rate. These rates are important in determination of precious metals and keeping up with the gold spot price . The trend that most people are familiar with is that the amount they pay for the commodity is inverse to the interest rates they have to pay. An analysis of this trend reveals that this is caused by the fact that changes in interest rates are associated with inflation concerns and devaluation of the dollar. However, since interest rates may rise because of other factors, the relationship may go inverse to the expectations of market players.




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