Juan Carlos Artigas, global research director at the World Gold Council, said in an interview with Kitco News that global gold consumption has returned to pre-pandemic levels, driven by the increase in jewelry, strong demand for ingots and coins and constant purchases from central banks. As a result, gold is often considered a hedge against inflation. Inflation occurs when prices rise and, in the same way, prices rise as the value of the dollar falls. As inflation increases, so does the price of gold, making it an attractive option for investors looking to diversify their portfolios with a Gold IRA. The main factor affecting gold rates is the supply and demand equation.
While demand increased, gold mining activities were seriously affected by blockades in several countries. The reduction in gold mining means a lower supply and may be one of the reasons why the price of gold is rising. You can buy physical gold bars and coins or “paper gold” in the form of a gold ETF or shares of a gold mining company. A study of the enormous bull market for gold during the 1970s revealed that the rise of gold to its highest price in the 20th century occurred just when interest rates were high and rising rapidly.
In recent weeks, the increase in the number of coronavirus cases, the increase in tensions between the United States and China and the general economic slowdown have led to a steady increase in gold prices around the world. While there has been a lot of talk about the factors affecting stock markets, many investors are unaware of the causes that cause gold prices to rise or fall. The lack of inflation has been one of the factors that has forced the Federal Reserve not to raise interest rates on loans, but it has also kept gold prices low, which usually perform better in an environment of rising inflation. While some ETFs represent ownership of real metal, others hold shares in mining companies instead of real gold.
So, if you're wondering why the price of gold is rising, supply and demand conditions may be one of the reasons. The expansion of the money supply dilutes the value of each existing banknote in circulation, making it more expensive to purchase assets that are a store of perceived value, such as gold. Every investor should research their own unique situation to see if having gold is the right option for them. Central banks, institutional investors and individuals consider physical gold to be an option to help preserve the value of their assets during these turbulent times.
Therefore, they don't offer the same protections against market and fiat currency volatility as physical gold. As demand for investment in gold changes, the price may be affected by the buying and selling activity of ETFs. Even if high rates of inflation last for an extended period, gold acts as a perfect hedge, since it is not affected by fluctuations in the value of the currency.