Gold Price: 4 Factors That Will Drive It Higher

Gold has been climbing in a big way this year, and for good reason. In fact, there are several good reasons that the precious metal has been gaining. You see, gold's price, like any other commodity is dependent on the law of supply and demand. When supplies are headed upward, the price falls. On the other hand, when demand is headed upward, the price gains. Well, there are several factors pushing the demand for the precious metal upward. Here are 4 factors that are causing demand for gold to climb, and will likely head to further gains in the price.

#1: Brexit

The first factor that's leading big gains in gold at the moment is the Brexit. Recently, the consumers of the UK voted for the UK to leave the European Union. While this action hasn't happened quite yet, it is leading to incredible economic fears in both the UK and Europe. Because these are two of the top five economies in the world, the global economic effect is leading to quite a bit of uncertainty. Of course, with gold being a safe haven investment, this leads to higher demand for gold among investors, leading to gains in the price of he precious metal.

#2: Interest Rates

The second factor that's playing a role in the gains we're seeing in gold is central bank interest rates. Years ago, many central banks around the world made the decision to abandon the gold standard. Instead of backing their currencies by precious metals, we entered the age of fiat currencies. As a result, many of today's currencies derive their values from the interest rates that are charged by the banks that control them.

This leads to a big problem. Due to economic issues, many central banks around the world have reduced their interest rates. Some of them have even pushed interest rates into negative territory. So, what we're seeing is an overall devaluation of global currencies. This is leading to further safe haven demand as currencies lose value.

#3: USD

The US dollar is incredibly important to gold investors. That's because gold is priced using the commodity. As a result, when the USD gains in value, gold becomes more expensive in nations outside of the United States. This leads to declines in global demand as the precious metal becomes less accessible. However, when the USD declines in value, we tend to see gains in global demand, and ultimately gains in the value of gold.

While the USD was on an upward trend before the year 2016, this year hasn't been very strong for the currency. As the USD continues to drop, gold is becoming more accessible around the world. This is leading to gains in demand, and ultimately gains in the value of the commodity.

#4: China Demand

China is the world's second largest economy. However, when it comes to gold, the nation is the number one in the world for demand. At the end of the day, China has an insatiable thirst for gold. In fact, over the past 12 months, the country has increased its gold reserves by 71.4%. That's massive. In a recent statement, Matthew Michael, a commodities expert at Schroders had the following to offer with regard to Chinese demand...

“China has a strong appetite for gold and that's been the case for years. They like gold because it is a store of value and the state is diversifying its official reserves... Individuals and investment companies have also been buying – gold is a liquid, tangible asset and if the Chinese currency weakens, it means investors in gold will be doing very well.”

What Do You Think?

Where do you think gold is headed moving forward and why? Join the discussion in the comments below!

[Image Courtesy of Wikipedia]