As one of the most popular types of investment globally, many people are starting to use gold as a short-term investment tool like a stock price index (in addition to long-term investments). The price of gold which is quite volatile is one of the reasons why they are interested in short-term investments. Gold often soars in uncertain situations, one of which is what is happening today during the Coronavirus pandemic. The reason is, in conditions like this, people usually run to gold as a haven or asset-saving commodity.
This is a standard view in society regarding gold. If you read various books about gold investment, they must refer to the history of the gold price, which is constantly increasing. No one has ever explained, or even shown, that the price of gold ever dropped. Everything is bullish or optimistic about the gold price trend. Then, what affects the price of gold in the world? Let's look at some of the factors below:
1. World Gold Production
Gold production in the world is closely related to the number of requests or needs that occur. Since 2000, the amount of gold production has continued to decline due to the difficulty of gold mining and decreasing resources. However, in 2010, the demand for gold increased by around 2,652 tons or 3% compared to the previous year. This has resulted in world gold producers such as South Africa, China, Australia, America, Russia, and Peru had to work extra by digging deeper or looking for other sources, which will automatically cause gold prices to soar up.
2. Total Demand and Supply of Gold
In addition to affecting gold production, the supply and demand for gold also affect gold prices in the world. As with other goods, the more the item is in order, the higher the item's price will be. On the other hand, the fewer people interested in an item, the lower the price.
3. Interest Rate
It can be said that interest rates are inversely proportional to the price of gold. The reason is, when interest rates rise, many people will withdraw their money from gold investments and move to forms of deposits that have high interest rates.
4. Changes in the US Dollar Exchange Rate
The US dollar exchange rate can be the most potent factor that determines the price of gold. The higher the US dollar exchange rate against the rupiah, the higher the price of gold. Conversely, when the US dollar exchange rate against the rupiah is low, the price of gold will be lower because the price of gold is closely related to the US dollar index.
Now that's the factor that causes the price of gold to go up or down, so before we invest in precious metals like gold, we must study and know the factors that influence the price of gold to reduce the risk of losing our investment. Because no investment is risk-free, but how to minimize the chances that occur.