Correlation between Gold prices and volatile economic conditions

The latest gold price reports claim the true state of economic health can be interpreted from gold rates. Gold provides protection in the condition of crisis and low gold price indicate low risk and healthy economic conditions. If gold prices are unpredictable and volatile, why invest?

Gold price is dependent on many factors. Firstly, on the laws of supply and demand, where the Gold mined each year is not adequate to meet the growing demand for gold. As per The Wall Street Journal article “Don't Expect Peak Gold Prospects to Mean New Price Heights”, about 26 per cent of the demand is met from recycled gold and when the price of gold increases, recycling increases.  A part of gold produced goes towards industrial uses and other in coins, jewellery and Central Banks.

Gold verses currency

Strengthening dollar inversely affects gold prices and since, the value of dollar is improving gold price are reducing.

Pension Funds

People are living and drawing pensions for longer durations, while, there are not many new workers to sustain the pensions.  The May report of the World Economic Forum (WEF) estimated, by 2050, the size of unfunded pensions will grow up to US$400 trillion and this leads to the rise in global debt level. These economic factors favour diversification in gold.

Gold hit a high in September 2011

Gold was all time high in September 2011 at $1,895 an ounce. This was due to weak employment reports and the Euro zone debt crisis. The uncertainty with global economies resulted in the rise in gold prices.  During this time the price rose from $1,000 an ounce post recession to double in two-and-a-half years.

Volatility during Brexit

Fluctuations in gold prices were reported in 2016 when the gold price surged during Brexit vote. The price rose from $1,254.96 at 4 pm (on June 23), to $1,347.12 by midnight on the evening of Brexit.

Gold and oil prices

During inflation gold price soar, the gold price reached $1,900 per ounce when the oil price was over $100 a barrel. Rising oil price can predict rise in gold price.

The relationship between gold and oil can be analysed by the fact that when the energy price is low and the commodities related to oil and energy prices are low, the oil company manager sell gold.

Oil price declines after a recession and prolonged periods of low oil price signal risk of recession and even great depression. When the oil prices move upwards, the economy shows growth and inflation. 

Inflation is another factor where gold provides hedge against inflation. 

In certain other economic conditions, the oil price was stable but gold price was volatile. One can say from various correlations that the price of oil has undeviating relation to gold price, although, the price of gold is also dependent on other factors - higher demand low supply, political and economic factors.

The real challenge for gold is volatility and transparency in market.  The gold jewellery market is unbranded and investors require proper guidance to make cost-effective investments. To get an informative overview of historical economic trends, reports on change in gold prices and the best ideas to invest in gold, check Asset Class Pedia (https://assetclasspedia.com/).