The past two weeks have seen a sharp rise in the price of gold, and many watchers of the market may be wondering what lies in store for the yellow metal over the coming weeks and months. Let’s discuss factors that could have an impact on the price of gold in the near term.
The price of crude oil
Currently, inflation in the United States is at levels last seen 40 years ago, and if the price of crude oil rises any further, we could see inflation surging forward. As inflation rises, so will the demand for bullion because its appeal as a safe haven against inflation will increase. As demand for gold increases, so will its price increase as well.
Conversely, a stabilization or even modest reduction in the price of crude oil could tamper the ascent of the price of gold since inflation will not increase as much without the ballast of rising fuel prices.
The dollar index
The recent weeks have seen the greenback gain against the major international currencies. So far, gold has continued its rise despite the strengthening of the dollar. However, if the dollar maintains its upward momentum, there could be a dampening in gold’s rally since the opportunity cost of owning bullion will be too high for many investors.
It is therefore worthwhile for gold investors to keep a close eye on the trajectory of the dollar vs. other major currencies in order to get an idea of where the price of gold is headed in the short term.
The peace talks between Russia and Ukraine
The geopolitical tension that culminated in Russia invading Ukraine created uncertainty, which caused supply chain issues for the global economy. Prices of commodities such as crude oil and fertilizers rose to record levels, and gold surged as well.
At the moment, talks are ongoing between these adversaries, and a lot is riding on the outcome of those talks. If the talks succeed in bringing an end to the conflict, the yellow metal could slow or even reverse its upward movement. However, if the talks collapse, we could see gold rising to new highs.
India’s wedding season
The upcoming wedding season in far-off India could also play a big role in the price of gold. This is because significant amounts of physical gold are used to make the jewelry used during marriage ceremonies. This demand for gold can accelerate other factors playing out on the international market for gold with a net result of a seasonal spike in the price of gold.
One would be well advised to keep tabs on the demand for gold in India in order to get pointers on where the price of the commodity could be headed and whether or not it would be the right time to invest in the stocks of gold extraction companies such as Royal Gold Inc. (NASDAQ: RGLD).
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