Understanding Gold Rates: What Factors Influence the Price of Gold?

With gold having been used by humans for thousands of years, this precious metal has had plenty of time to prove itself as a store of value and a hedge against inflation. Indeed, it is an asset that has held up well during times of geopolitical uncertainty and economic instability.

However, the question of what drives the gold rate in NZ and internationally can be tricky to answer, as there is a multitude of factors. The below factors are believed to be among the most influential.

The Value of The United States Dollar 

It might seem curious to suggest that the price of a borderless asset – recognised and valued by every country, including NZ – would be greatly influenced by the value of just one national currency.

However, it should be noted that this precious metal is generally a dollar-denominated asset – in other words, its value tends to be priced in US dollars. The relationship between a dollar-denominated asset and the value of the US dollar is typically an inverse one. So, whenever the dollar’s value goes down, gold rates will generally increase, and vice versa.

Demand For Gold 

Such is the attractiveness of gold bars and coins to ordinary retail consumers, that it can be easy to overlook what a broad base of demand this yellow metal enjoys from other investors and institutions.

Central banks around the world, for example, have continued to purchase gold in remarkable volumes. In 2023, they added 1,037 tonnes of gold, which was the second-highest annual purchase ever seen, behind only the record high of 1,082 tonnes in 2022.

A variety of industrial and production applications, too, depend on gold, including in electronics and healthcare. The jewellery market can be a factor in gold demand as well. However, it is generally regarded as one of the weaker drivers of gold rates, given that jewellery – once purchased – tends to be retained by the owner for years.

The Production of Gold 

It is estimated that around 2,500 to 3,000 tonnes of gold are mined each year on average. This, combined with gold being a finite resource, means supply will inevitably run out one day. In the meantime, it is becoming increasingly difficult and expensive to keep on mining gold.

Demand outpacing supply will inevitably help drive up gold prices worldwide. Experts disagree on whether the world has reached “peak gold”. However, with gold production having plateaued in recent years, there have been suggestions that gold mining could become unsustainable by as soon as 2050.

Gold prices are continuing to hit all-time highs, so if you wish to invest, now could be the time to act. Check out the latest gold price in NZ on our website today, before buying the bullion that most interests you via Commonwealth Vault.