Why is gold soaring

As it happens, gold mining doesn't add much to supply from year to year. So, what is the true mover of gold prices? Economists Claude B. It turns out that gold doesn't correlate well to inflation. That is, when inflation rises, it doesn't mean that gold is necessarily a good bet. So, if inflation isn't driving the price, is fear?

Certainly, during times of economic crisis, investors flock to gold. When the Great Recession hit, for example, gold prices rose. That said, gold prices rose further, even as the economy recovered. In their paper titled The Golden Dilemma , Erb and Harvey note that gold has positive price elasticity. That essentially means that, as more people buy gold, the price goes up, in line with demand.

It also means there aren't any underlying "fundamentals" to the price of gold. That doesn't mean that gold prices are completely random or the result of herd behavior. Some forces affect the supply of gold in the wider market, and gold is a worldwide commodity market , like oil or coffee.

Unlike oil or coffee, however, gold isn't consumed. Almost all the gold ever mined is still around and more gold is being mined each day. If so, one would expect the price of gold to plummet over time, since there is more and more of it around. So, why doesn't it?

Aside from the fact that the number of people who might want to buy it is constantly on the rise, jewelry and investment demand offer some clues. As Peter Hug, director of global trading at Kitco , said, "It ends up in a drawer someplace. Even though countries like India and China treat gold as a store of value , the people who buy it there don't regularly trade it few pay for a washing machine by handing over a gold bracelet. Instead, jewelry demand tends to rise and fall with the price of gold.

When prices are high, the demand for jewelry falls relative to investor demand. Hug says the big market movers of gold prices are often central banks. In times when foreign exchange reserves are large, and the economy is humming along, a central bank will want to reduce the amount of gold it holds.

That's because the gold is a dead asset—unlike bonds or even money in a deposit account, it generates no return. The problem for central banks is that this is precisely when the other investors out there aren't that interested in gold.

Thus, a central bank is always on the wrong side of the trade, even though selling that gold is precisely what the bank is supposed to do. As a result, the price of gold falls. Central banks have tried to manage their gold sales in a cartel-like fashion, to avoid disrupting the market too much. But, rising crude oil prices may lead to sharp rise in global inflation. This rise in inflation may force Fed to rethink over its recent decision in regard to bond tapering.

So, rising crude oil price may lead to trend reversal in gold price in second fortnight of October Apart from this, fast approaching festival season in India is expected to fuel gold demand in the domestic market, which is also positive for the yellow metal outlook. They said that current power crisis in China may also lead to sharp correction in equity markets where equity investors may switch to gold investments.

Current, dip in gold price is because of the US Dollar gaining strength after the Fed announcement in regard to bond tapering. However, the way crude oil price has been soaring in international market; it may lead to rise in global inflation in next few weeks that may force Fed to rethink over its announcement. Ditch a broad ESG approach to funds for these two focused investment trusts. Skip to Content Skip to Footer. Analysis Home Investments Commodities Gold. The risks of inflation are as high as ever, even though the Fed is now less likely to tighten monetary policy So what does this mean?

Why else may gold rise? Private equity eyes up high-street banks UK stockmarkets. The charts that matter: inflation fears give gold a much needed boost Economy. US inflation hit its highest in 30 years this week, driving gold and bitcoin to new highs. Here i…. With many cryptocurrencies surging to new highs this week, here are the stories that have caught our eye in the last seven days.

Fuel oil prices soared Energy prices overall climbed 4. In a separate report by the Labor Department, real wages after inflation fell 0. The Fed has conceded that inflation has been more persistent than expected, but says it expects the situation to return to normal in a year or so. Surging inflation could force the Fed to tighten policy more quickly than it has signaled though it has been insisting that interest rate hikes are still off in the future.

Inflation matters aside, a gold-buying spree in India has been giving the precious metal a boost. The India Gem and Jewellery Domestic Council Chairman estimates that gold sales this year will be percent above pre-pandemic levels , while the India Bullion and Jewellers Association IBJA has reported that sale of gold on Dhanteras across the country this year was about 50 tonnes, valued at over Rs 20, crore.

Dhanteras festival marks the first day of Diwali celebrations. Wall Street is growing increasingly bullish on the gold trajectory: "Gold prices are on the cusp of a breakout. Considering the extremely poor sentiment in precious metals across the last few months, the bar is low for prices to slice through trendline resistance, "TD Securities analysts have told CNBC. Why Uranium Stocks Are Soaring.

Read this article on OilPrice. AstraZeneca says Covid vaccine now profitable, schools relax mask requirements, Alibaba looks to make its Singles Day a global thing, and other news to start your day. Bharat Biotech Ltd. The activist investor push to force coal miners to bring down production has in several cases led to the opposite effect, in which a tight coal market has made mining assets more valuable.

Indian crypto exchanges have been very irresponsible in making absurd and outright false claims in their relentless ads.