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How the Price of Gold Affects the Economy

Before paper currency became the central, standard form of monetary transaction, civilization relied on the intrinsic values of metal pieces (often made into coins or measured by weight) for trade. These pieces were usually precious metals like silver or the more valuable gold. Even today, with paper currency running the markets, gold remains an influential part of the economy or, at the very least, an indicator of the economy’s health. Here are a few specific ways gold affects the economy.

Affects Portfolio Values

Gold is a popular option for a diversified portfolio. Even if the market were to crash, the value of gold would not drop significantly. If gold is part of your portfolio, it can serve as a safety net for if other elements of your portfolio are to fail or depreciate—and you can feel confident that your gold will remain a solid investment.

Makes Products More Expensive

The value of gold is evident when it is utilized in different products. Jewelry, medals, and statuettes are all commonly made from this precious metal. However, gold is an effective material in many other products as well, including computer parts and electronics. As a good conductor of electricity, even small gold pieces can be used to connect or line electrical circuitry and therefore create a strong channel of electric flow.

Dentistry and medical fields are another place where gold’s properties are appreciated. For example, gold is one of the many metals used to create dental crowns. This is because it is highly resistant to the acid found in saliva and many foods, as well as bacteria, meaning it will not break down when exposed to these substances consistently. Clearly, gold is a fantastic resource to be used in a variety of products. This consequently means that those products are higher in price!

Indicator of Overall Economic Health

Unlike paper currency which can be printed, cycled through, and “inflated” so that it decreases in value, gold exists in a finite amount. Essentially, a poor economy will reflect high gold prices: as nervous investors seek to buy up the nation’s gold stock, the prices will increase as gold becomes a commodity. Conversely, a good economy means low gold prices as it becomes less sought for. Knowing how the prices of gold are changing can indicate the health and confidence of the economy.

There are so many things that affect an economy, but the price of gold is definitely one to pay attention to. Watch for the changing prices of gold, and they’ll tell you a lot about the rest of the economy’s state. You may even consider making it a bigger part of your own investment portfolios!

Read this next: How to Stay in Shape Even as You Get Older

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