Is it the right time to invest in Gold? Or purchasing the jewelry? When you decide to buy and the gold price shock you. The question is-
Why is Gold gaining so much while the market is closed, and movement and functions are restricted due to COVID19?
Gold has been considered the safest investment
since the beginning. It not only holds the monetary value now but even in the previous
era.
Since when mankind has learned about the
transactions, the Gold held value. However, this is not only the reason for a
sudden increase in gold prices. There are multiple reasons as in lockdown- the
prices were at a peak.
This is the only factor; however, there are
multiple factors associated with every situation.
After 2012, this is the highest value the Gold
has achieved, and there are various reasons behind it.
1.
The connection between Gold and the US dollar
2.
Investment
Demand
3.
Central
Bank’s Borrowing in Bonds
4.
Economic
and Monetary Factors,
5.
New
Mine Supply
It is very much observant in the economy of the
world that whenever the US dollar goes up, the gold rate goes down, and when the
US dollar goes down, the gold prices go up.
Therefore, two currencies – Gold and
the US dollar are inversely proportional.
International Gold is dollar-denominated. Therefore,
if the dollar falls, it increases the value of other currencies, increasing the
demand in the commodity. Moreover, if the dollar value goes down, investors
start looking for a better and safer alternative. Therefore, they invest more
in Gold. That is why the US dollar and gold prices are inversely proportional.
Investment Demand
The investment demand worldwide has grown more,
as more investors are attracted to Gold as a safe medium of investment. In
2019, Gold gave huge returns, therefore in 2020, when COVID 19 ruined the economy of the entire world--- Investors also started investing in the safer
investment sources- Gold.
Central Bank’s Buying
Since March 2020, when the entire world
struggled against COVID 19 and the federal reserves has to support the business
and keep the financial market stability. Therefore, the interest rate has been
reduced to help the economy. Central
Bank raised money in the form of Bonds, which gives lesser returns, which again
pushed the investors towards gold purchase. The Central Banks also have been
investing in the Gold.
Economic and Monetary Factors
To understand that gold prices are affected by
the monetary policy and economic data as well. Monetary policy controls the
interest rates, which can be for bi-monthly or monthly.
Interest rates when they are lower it leads to
money loss. As a result, people find Gold more attractive.
Economic data also impacts the gold prices. Factors
such as low employment rate, wage data, manufacturing report, and GDP also
influence gold prices. When the
countries have low unemployment and higher GDP, people feel secure, which leads
to lower Gold Prices.
On the other hand, if the GDP rate is lower,
and unemployment goes upward, so the gold prices grow higher due to
uncertainty.
New Mine Supply
In the past few years, the gold miners have
reduced the growing production to any cost.
Low gold prices pushed miners from going full
mining of Gold.
Currently
the United States, Australia, and Canada absorb a major portion of global
spending on exploration. Smaller miners have struggled to convince the
investors, but rising in the price of gold will lure investors in producing
more.
Is it the right time to buy the Gold?
The uncertainty has raised the value of Gold.
If you compare, the Gold had provided double-digit returns when the share market
and investment went down.
So when is it the right time to buy the Gold?
The gold is expected to rise, but the prices
will fall when the market starts functioning at a normal pace.
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