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What determines the value of gold per ounce?

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Quick Answer

Several factors can increase the value of gold such as a depreciating US dollar, increased inflation rates, a higher demand for gold and during times of natural disaster and political strife. The value of gold tends to decrease when short-term interest rates rise.

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What determines the value of gold per ounce?
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Full Answer

The US exchange rate has historically influenced gold prices by causing an increase in the value of gold when the US dollar depreciates. This occurs because the central banks of countries are more likely to invest in assets such as gold in order to diversify their risks during certain economic conditions. Gold prices generally rise with inflation. During periods of inflation people are more likely to invest in gold to attempt to receive a steady return on this asset in the future. If the demand for gold is high, the value of it increases. Demand for gold is influenced by the jewellery, investment, manufacturing and medical sectors. Gold prices also tend to increase during times of natural disaster and political strife. During these times asset prices generally decline, and people are more likely to buy a fixed asset such as gold. Fixed assets provide a more stable return than other assets.

When short-term interest rates rise, the price of gold does down. As a non-interest bearing asset, gold does not earn interest if a country’s interest rates rise. Therefore, people may leave more money in deposits to obtain a better return than if they invested in gold, thus resulting in a lower demand and decreased price of gold.

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