Have you ever wondered why the price of gold suddenly surges and then drops without warning?

The secret lies in a set of factors that shape the changes in gold prices around the clock. These factors are not random; they are interconnected and complex, influenced by global economic trends, monetary policies, geopolitical tensions, and even domestic decisions within each country.

In this article, we explore the key market forces shaping the landscape of gold pricing both internationally and locally, revealing how and why this precious metal shifts in value.

Factors Influencing Gold Prices

The factors affecting global gold prices range from economic to geopolitical. Below are the most important drivers in the gold market and bullion trading:

1. Supply and Demand in the Market

Supply and demand are the primary forces behind any commodity, and gold is no exception. When demand for physical gold or investment gold rises — especially during wedding seasons and festivals in India and China — prices increase. Conversely, if supply expands due to new mine discoveries or demand weakens, prices fall.

Example: During economic recessions, demand for gold as a safe-haven asset rises, pushing prices higher even if supply remains steady.

2. Inflation

Inflation is a sustained rise in the prices of goods and services that erodes the purchasing power of fiat currency.

When inflation rises, confidence in paper money declines, and investors turn to gold as a real asset that preserves value. Here, gold emerges as a safe-haven asset, viewed as a real store of value that does not easily lose its worth. As a result, demand for physical gold and investment gold increases, driving the gold price higher.

On the other hand, when inflation declines or remains stable, confidence in fiat currency remains strong, reducing investor appetite for gold, which often leads to a drop in bullion prices.

Example: During the 2008 financial crisis and the post-COVID inflation surge, gold prices rose sharply as investors sought protection against currency devaluation.

3. Interest Rates

Interest rates, set by central banks, determine returns on deposi