Why is the Gold Price Rising? Here are the Factors Behind it

Why is the price of gold rising? (doc. Antara)

YOGYAKARTA - Gold has long been used as a stable investment instrument and has a high value. In addition to Indonesia, gold is also considered a safe asset worldwide that is able to maintain its value in the long term. In recent years, people have begun to realize that gold prices tend to increase consistently. Why does the price of gold keep rising? Check out the discussion below.

Why is the Gold Price Rising?

The answer to this question is certainly not simple, there are various factors such as economics, politics, to psychology that play a role behind the rise in gold prices.

Gold as a Safe Asset in the Midst of Global Uncertainty

One of the main reasons why the price of gold continues to rise is because gold is known as a safe asset. When the world is facing uncertain situations due to economic crises, geopolitical conflicts, pandemics, or political instability, investors tend to look for a place to hide to maintain their wealth. And gold has proven for hundreds of years to be a reliable store of value instrument.

For example, when the global pandemic occurred several years ago, various economic sectors were hit hard. The stock market experienced turmoil, the value of the currency weakened, and there were significant changes in interest rates. In the midst of these conditions, the demand for gold jumped drastically. The higher the demand, the higher the gold price.

Rising Inflation

Inflation is one of the main enemies of the value of money. When inflation increases, people's purchasing power decreases. Staple goods will be more expensive while the value of the money saved does not increase. This condition makes many people look for investment instruments that can maintain the value of their wealth. In this case, gold is the right choice.

This is because gold has intrinsic value, meaning its value does not only depend on economic conditions or government policies. When inflation increases, in order to avoid the devaluation of money, investors tend to buy gold. As a result, the price of gold also goes up. The uncertain inflation situation in various countries is one of the reasons why the price of gold continues to rise year after year.

World Major Currency Values Decline

In addition to inflation, the depreciation of the currency, especially the US dollar, is also a factor in the rise and fall of gold prices. In international trade, gold is priced in dollars. In other words, when the dollar weakens, gold prices tend to rise because the purchasing power of gold increases.

For example, if the dollar weakens against other currencies, global investors will be more interested in buying gold because it is considered more stable. This increased demand has made the price of gold soar. Conversely, when the dollar strengthens, the price of gold is generally stagnant or even falling, because gold becomes relatively more expensive for countries that use other currencies.

However, in recent years, the dollar tends to be under pressure, especially during global crises. This condition is one of the factors for the continuous rise in gold prices.

Jewelry Industry Demand is Always High

In addition to being an investment instrument, gold also has a major role in the jewelry industry. In countries such as China, India, and Indonesia, gold is a symbol of prosperity and an important part of tradition and culture.

For example, the demand for gold always increases every time it enters the wedding season in India or the Chinese New Year in China. Seasonal demand like this is also a cause of the rise in gold prices in the global market.

When the demand for jewelry remains high, the price of gold tends to be stable and slowly rise. Even the demand for gold jewelry often remains strong in the midst of an uncertain economy, because it is considered a valuable physical asset.

Central Bank Policy and Interest Rates are Uncertain

Central banks in various countries, for example Bank Indonesia or The Federal Reserve (The Fed) in the United States, have an important role in determining the direction of interest rates. When interest rates are lowered, investments with interest-based assets such as deposits and bonds become less attractive. That's when many investors turn to gold as a way to secure assets.

Conversely, when interest rates rise, gold becomes less desirable because gold does not provide interest or dividends. However, in periods of uncertainty in Central Bank policy, gold prices often move up because many parties are vigilant and choose safe assets.

In recent years, the global economic conditions have made central banks often make unexpected interest rate adjustments. This uncertainty is what makes investors more comfortable investing in the form of gold.

Geopolitical Tensions and International Conflicts

Another factor that causes the surge in gold prices is the occurrence of geopolitical conflicts. Conflicts between countries, trade wars, to the threat of open war can cause market volatility. In this situation, investors tend to avoid risky assets such as stocks and prefer gold.

History records that whenever there is a major geopolitical tension, the price of gold always rises significantly. For example, conflicts in the Middle East or tensions between major countries such as the United States and Russia are often the trigger for rising gold prices.

Gold was chosen because it is considered able to maintain its value even though the world is in a chaotic situation. As long as global uncertainty continues, the tendency for gold prices to rise will continue.

Global Gold Supply is Limited

One of the other causes of the long-term rise in gold prices is supply constraints. Gold is a non-renewable natural resource. Its reserves on earth are decreasing, and the process of mining gold is becoming more difficult and expensive.

When supplies decline, while demand continues to increase, gold prices will be pushed up. In fact, some analysts predict that global gold production will decline in the next few decades because easily mined reserves are almost exhausted.

This scarcity factor makes gold an increasingly valuable commodity. That is why many investors predict that the long-term gold price will continue to creep up.

Investor Behavior and Market Sentiment

In the end, psychological factors also play an important role. When there is a lot of concern in the financial market, investors tend to determine the steps collectively. Fear of a crisis, recession, or bankruptcy of large companies can lead to massive buying of gold.

This of course creates a wave of price increases, especially in the short term. Even certain rumors or predictions from senior analysts can also affect investor decisions and have an impact on gold price movements.

This is an overview of why gold prices continue to rise with several factors that cause this phenomenon to occur. Visit VOI.id for other interesting information.