Which are the drivers of higher gold prices that every investor should know about?


The global market is a dog-eat-dog world, and the gold market is no exception. A glance is enough to verify that the ones who make a real profit on gold prices can be found on opposite ends – those wealthy by a stroke of luck and those furnished with all the information.

Luck comes and goes, while reliable information is an eternal parachute for finances. Global InterGold reports: which are the catalysts for the price of gold?

The endless analysis about gold prices take notice of key factors with daily repercussion in this precious mineral, and now and then some points in the gold market go unnoticed. One of the prevailing factors is inflation; the incessant impression of money vs. scarceness of gold resources with a late reduction in production, but there's more to take into account.

James Rickards, author of bestsellers and with topics related to currencies and gold always in sight, has published an essay short while ago pointing out three factors to bear in mind when one wants to predict the fluctuations of this precious metal's prices on the global gold market.

Which are these factors?

1. Extreme deflation

Central banks struggle to shield against high deflation at all cost. High deflation is translated into lower prices of products which are untaxed, and hence, do not generate enough taxes for governments. Deflation also influences countries - such as those of the euro zone which of late are protagonists in gold prices' movements - as it increases the real value of debts. When these conditions are met, the shield needs to be strengthened and one of the solutions is the increase of inflation through a rise of gold prices, or better explained in the words of the expert “through a devaluation of the dollar measured in gold.”

2. Financial panic

This one may recall the situation presented regularly by newspapers worldwide. A serious string of mishaps take place in countries – call it crisis, call it recession - leading to skepticism on the market as a whole. The pattern followed is a slight decrease in gold prices when everything starts, which stabilizes after other assets fall and gold emerges as safe-haven for every investor's portfolio, and for individuals to preserve wealth, increasing its price.

3. Negative real interest rates

Gold investors would sooner wait for negative ones rather than the current positive interest rates. And the Federal Reserve, one of the main movers and shakers of the gold market, has been tempting market participants with a possible rise in interest rates, likely to happen by the end of the present year.

It is extremely difficult not to find these factors neither within the gold market, nor on the threshold of it. As a conclusion, they are to be taken into account for a most accurate prediction of the future gold prices, as well as gold is to be included in portfolio and kept in physical form.

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