There are a lot of factors responsible for gold price hikes and drops with one such factor being economic uncertainty. A recent example was the COVID-19 pandemic which had caused economic uncertainty globally, due to which businesses and individuals were witnessing financial difficulties. The uncertainty caused by events like COVID-19 has pushed many investors towards looking to investing their money in gold, in order to protect their wealth and hedge against inflation. This has led to an increase in demand for gold hence causing prices to rise up. Also due to the COVID-19 pandemic, gold mining operations and the supply chain had been affected, due to which the amount of gold supply has been reduced in the market. This has also led to a supply shortage and in turn increase in the price of gold.
Another factor is inflation because central banks printed a large amount of money in order to support their economies, which is a concern for investors. As inflation reduces the purchasing power of the dollar, the demand for gold, which acts as a hedge against inflation, drives up gold’s price. On the other hand, low-interest rates offered by banks and other financial institutions on investments make it less attractive for investors to hold cash, fixed deposits, or bonds. Therefore, investments in gold are preferred by investors. Because historically gold has provided better returns.
Due to low-interest rates of loans also attracts investors to borrow money from banks to buy gold, further driving up its price. Tensions between major countries, such as the US and China, Russia, and Ukraine have also contributed to the current high gold price. Such factors create a high demand for safe assets, such as gold because investors want to protect their wealth.