Factors Affecting Gold Bullion Price
Gold bullion is a global market having universal acceptability, convertibility and liquidity. Demand and supply determine global gold bullion price. However, hoarding is a pivotal factor while this price is determined. Along with, there are several factors which affect the bullion price significantly. Change in public sentiment is one of the major reasons behind it. Studies have found that demand for gold exceeds 1,000 tones over available annual supply. Policies of central banks and international monetary organizations have also a greater say in determining bullion price. Till 2004, 19% of total gold available in world was stored as official gold reserves by several central banks and international monetary organization. Release of this stock in different times to combat region specific economic problems creates variations in bullion price.
Possible bank failures and gold bullion price are directly proportional. Until a currency enjoys complete convertibility with gold, people prefer having token currency and paper notes. When financial instabilities and bank failures disturb this convertibility, people prefer gold over currency and the price of gold rises. This happened in US too after great depression of the thirties. To prevent this problem president Roosevelt had to announce national emergency on gold ownership. Low interest rate also drags the attention of investors from equities and stocks to gold bullion. During this time, stocks and equities yield lower (in some cases) negative return. Return from gold bullion is more or less stable in this regard. Hence, gold bullion prices rise while there is cut in bank interest rate and vice versa.
National crisis like, war and civil war, looting etc. create insecurity among the minds of people. Several instances are found in history when assets and currencies of citizens are seized during national crisis. During this time period, people find gold as a viable medium for exchange and earn a living. Hence, gold bullion price increases at times of national crisis. Change in popular taste and mood also create variance in bullion price. But, the change is not that significant. Anticipation of further price rise leads to increased sale of gold bullion. As the demand exceeds supply in this juncture, price rises further.
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