What Drives Gold Prices

In the past decades, gold has become more than just a symbol of wealth. It is now a cornerstone of global finances, becoming a highly lucrative investment vehicle. 

Whether you’re an investor, trader, or simply someone interested in the complex dynamics of the gold market, this guide is for you. Here’s a closer look at factors that determine gold prices and some examples to make things clear:

Gold As an Asset

Gold has numerous distinctive characteristics that set it apart from other investments. First off, it can’t be printed like currency or created out of air like cryptocurrencies. Gold has a limited and scarce supply. This is why gold helps ensure a hedge against inflation and uncertain market movements. 

Despite being in limited supply, gold has become highly accessible. The global gold market operates through three key centres, including:

• London Bullion Market Association (LBMA)
• COMEX (Commodity Exchange) in the U.S.
• Shengai Gold Exchange (SGE)

You can trade gold through ETFs, mining stocks, futures, and options. Gold trading can help diversify your trading portfolio and help you build a tangible asset. 

Gold Supply and Mining Production

Since gold is a produced commodity, its prices are heavily dependent on supply and demand. 

New gold is mined and brought to the market. A big portion of this is used for jewellery production and technological advancements. When the demand for gold exceeds its supply, you will experience a sudden rise in prices. Similarly, if the supply is higher than the demand, prices go down. 

Gold from old jewellery and other sources is also added to the mix to cater to a rising demand. This is becoming more popular because mining operations are becoming increasingly expensive. Extraction costs have made new mining operations challenging. 

Inflation

Historically speaking, gold prices tend to increase during periods of inflation. For instance, during the 1970s, when inflation heightened, gold prices soared. 

Central Bank Policies

Central banks hold at least one-fifth of the gold ever mined. They do it to maintain stability in their monetary systems and preserve national wealth reserves. Their decisions on interest rates can impact gold prices. This can reduce gold prices or signal confidence in gold as a safe-haven asset.  

The U.S Dollar

Interestingly, gold exhibits an inverse relationship with the U.S. dollar. When the dollar strengthens, gold weakens and vice versa. 

Similarly, when the U.S. interest rates are low, gold becomes a much more attractive investment vehicle. During surges of high inflation, gold acts as a safe haven for investors. 

Financial and Geopolitical Tensions

Financial tensions have a huge impact on gold prices. For instance, during the economic crisis of 2008, gold prices went from $730 to $1,300 between October 2008 and October 2010. Similar trends are seen during war and geopolitical events. 

Moreover, the COVID-19 pandemic was bullish for gold prices. Gold increased nearly 16% in value, and kept on increasing over a period of a few months. In February 2025, gold prices reached a record high of $2,900.