Gold futures on the COMEX division of the New York Mercantile Exchange rose on Friday as the U.S. dollar fell.
The most active gold contract for December delivery rose 31.1 U.S. dollars, or 1.64 percent, to close at 1,926.2 dollars per ounce.
Gold also found support as stimulus talks in Washington, D.C. resumed on Thursday after being briefly suspended. The confusion on a COVID-19 stimulus deal among U.S. legislators has concerned investors and driven many to the precious metal as a safe haven asset.
Market analysts note that there are some labor tensions at gold mines in Chile which could result in potential disruptions to gold supply, further supporting the price of gold.
Silver for December delivery rose 1.232 dollars, or 5.16 percent, to close at 25.108 dollars per ounce. Platinum for January delivery rose 30.3 dollars, or 3.51 percent, to close at 894.3 dollars per ounce.
Factors that determine rise, fall of gold prices
1. Demand and Supply
As is true with any traded commodity, the demand and supply of gold, plays an important role in determining its price. Unlike oil, gold is not a consumable product. All the gold that has ever been mined is still available in the world. Also, every year, the amount of gold mined is not very high. And so, if the demand for gold increases, the price increases since the supply is relatively scarce.
When the inflation rates rise, the value of the currency decreases. Also, most other investment avenues fail to deliver inflation-beating returns. Hence, most people start investing in gold. Even if high rates of inflation last for an extended period, gold acts as a perfect hedge since it is not affected by fluctuations in the value of the currency.
3. Interest Rates
Gold prices have an inverse relationship with interest rates. When the interest rates fall, people don’t get good returns on their deposits. Hence, they tend to break their deposits and buy gold instead causing an increase in demand and so the price. On the other hand, when the interest rates rise, people sell their gold and invest in deposits to earn high interest leading to a drop in demand and price.