Much like for other commodities, predicting the future value of gold is difficult, and there’s a simple reason for this.
Commodity markets are like auctions. People seek to buy before the price rises, but by doing so, drive the price up. This is the nature of supply and demand within a physical asset market such as gold; demand will always cause prices to go up.
Of course, it is possible to make assumptions about gold’s future value. But as with any investment, there are no guarantees that things will follow as predicted.
Investors typically consider five factors when buying and selling gold. These include:
- Supply and demand – is demand likely to increase, causing a spike in value? If so, now is the best time to buy, but waiting could pay off if you’re looking to sell.
- Inflation – is inflation set to rise? Gold is a popular hedging tool to protect against inflation, so investors track this figure carefully.
- Interest rates – historically, gold prices have dropped as interest rates have risen, so this is another relationship to consider when predicting future changes in value.
- Currency rates – as touched on throughout this guide, currency rates are a major deciding factor when it comes to investing in gold. When predicting future price changes, investors typically look at the health of the US dollar, British pound sterling, and the Indian rupee.
- Crises and world events – what is happening around the world that could the value of gold? From oil and gas prices to crises such as fuel shortages and pandemics, a huge range of external factors can influence the price of gold, so investors need to carefully assess the state of play before buying and selling.