Who is Responsible for the Rise of Gold Prices?

Submitted by Share Trading on 4 March, 2010 - 12:35

Gold Cash
Have you ever wondered who is responsible for the rise of gold prices?

Have you ever wondered who is responsible for the rise of gold prices? As a matter of fact there is no one responsible to set prices for gold. The price of gold is actually set by that of free markets, as this happens in a way to equalize supply and demand. In cases where demand exceeds supplies, prices are going to increase, and with the prices of gold going up, demand lessens when compared to the supply.

As of today, gold prices have increased as investors have become weary of the risks involved in the financial markets, especially the volatility from the worldwide stockmarkets in 2009. Investors who opt for a secure store of wealth find gold as the right choice due to the value that it has been holding since time immemorial. But gold happens to be risky over shorter time periods. From a peak of about $800 per ounce experienced in 1980, gold rates dipped to fall under $ 300 per ounce way back in 2001.

Similarity Between Gold and Stocks

The functioning of the stock markets happens in the similar way. The exchanging of shares between buyers takes place in the free markets. Attempts to determine the future prosperity related to the shares is made by market participants and they buy as well as sell based upon these determining factors. A very significant point while investing in stocks is the fact that stocks get priced with their expectations for the future as the base, and the current performance has nothing to do with the price.

Nevertheless, people very often hold the notion that with the increase in the price of stocks, the dividend increases, or the stock could bring in more profitability in the future. This is not a sure fact to be relied upon. Mostly, stocks rise with the expectation that it will do well in the future to bring in more prosperity, and with the occurrence of prosperity, the stock isn’t going to do anything as the price gets accounted for that of the expectations.

Gold Market Efficiency

As with the case of stocks, to beat the market is made difficult by this very reason. Gold market participants as when they buy and sell influence the prices, and by doing this they are only making predictions as which get dictated by their knowledge. The current market price then reflects everything that is known as well as any future expectations. This is known by the term market efficiency. Market efficiency doesn’t mean the correctness of price at all times, but means that the prices are set by market than by other mechanisms.

More about