Gold Price Explained: What Moves Gold’s Price?

From ancient civilisations to the modern age, individuals have relied on gold for beauty, industrial uses, and as a store of value. This precious metal's history has been an investor's go-to during times of economic instability, political upheaval, and even during rallying markets.

Given its high global demand, gold's price fluctuations may be triggered by a large number of global factors such as inflation, supply, demand, and even trader sentiment, keeping the XAU/USD continuously on the move.

TL;DR

• Gold has been valued for beauty and industry and has been a store of value since ancient times.
• Gold prices fluctuate due to inflation, supply and demand, currency strength, and geopolitical events.
• Inflation drives demand for gold as a stable store of value during currency devaluation.
• Supply changes with mining activity and discoveries affect prices.
• Demand comes from jewellery, industry, investment, and central banks.
• The US dollar's strength inversely affects gold's price since gold is priced in USD.
• Geopolitical crises boost gold's status as a safe-haven asset.
• Central banks use gold to stabilise currencies and restore trust.
• Gold trading requires attention to various global economic and political factors.

Factors Affecting Gold's Price

Gold's price is influenced by the same factors that affect other commodities. However, its wide-scale popularity and stored value increase its exposure to greater gains and losses.

The key factors affecting gold's price are:

• Inflation: When a currency experiences greater than normal inflation, traders may prefer to store their value in gold since it is relatively stable and has historically held its value well.
• Supply: Like other commodities, supply has the power to lower Gold's price if a market becomes saturated or raise the price if scarce. New gold discoveries increase availability where there may have been a shortage.
  Unlike some consumable commodities such as oil and corn, gold is still tradable even after being used. If the price goes higher, it is more advantageous for miners to mine for new Gold. If the price drops, they may not mine as much, resulting in less supply in the market.
• Demand: Demand for Gold can be triggered by the demand for the metal in jewelry, industrial uses, and trading. If demand is greater than the supply, the price may go up. On the other hand, if demand is low and the market has a surplus, the price may drop to attract buyers, or it may rise depending on buyer demand.
• The US Dollar: Gold is priced in dollars, making the US currency a player in how attractive the commodity is to foreign investors. If someone trades in Euros, Pounds, or another currency, a devalued USD may make the commodity more attractive, while a stronger dollar may have the adverse effect.
• Geopolitical events: As a global metal, geopolitical events can have an effect on the supply of this precious metal. Events can also affect the movement of currencies, changing the relative value of gold and potentially sending large numbers of traders to or from this commodity.

For example, in 2025, the Middle East conflict between Israel and Iran caused significant fluctuations in gold prices, highlighting gold's status as a safe-haven asset during geopolitical unrest. As tensions escalated, gold surged close to $3,400 an ounce amid fears of a wider regional war, though prices remained volatile with frequent corrections when signs of de-escalation emerged. The main driver was ongoing geopolitical risk, influenced by military actions and political statements. At the same time, factors such as the strength of the US dollar and Federal Reserve interest rate decisions can also affect price movements.

Gold as a Currency Stabiliser

Gold is used by various countries' central banks to stabilise the currencies. Having large stores of gold in a country's central bank system is seen as a tool for backing the value of its money with a hard commodity.

When a currency becomes devalued, the government may authorise a large purchase of gold for its central bank. At times, these deals will be large enough to impact the gold market since traders recognise large quantities being purchased or transferred and therefore being removed from the open market for trade, triggering a price shift.

When executed properly by central banks, it offers a quick fix to the currency by instilling trust once again.

Gold as a Competitive Commodity

As we have seen, gold does not move based on the demand for consumption, like the oil or Arabica Coffee markets. Supply and demand are influenced by traders, jewellery buyers, and even governments.

When trading this commodity, it is beneficial to review all aspects of the market and consider how various world events can either move gold's price higher or lower.

Conclusion

Gold's enduring appeal lies in its unique combination of historical significance, industrial utility, and monetary value.

Throughout history, it has acted as a hedge against inflation, a refuge during geopolitical turmoil, and a tool for governments to back their currencies. Its price remains highly sensitive to multiple global factors, including supply and demand dynamics, currency fluctuations, and political events.

Understanding these forces is essential for anyone involved in gold investment or trade, as the metal's value is shaped by consumption and its role as a global economic stabiliser and safe-haven asset.

*Past performance does not reflect future results.