According to Treasury, for thousands of years, gold has been a symbol of wealth and one of the important foundations of the world’s financial system. However, as an MSME player who is more busy thinking about daily operations, marketing strategies, or stock of goods, you may rarely pay attention to gold price movements.
Even though it seems far from the business world you are involved in, in reality the price of gold can have a direct or indirect impact on the sustainability of your business.
That’s why understanding gold price movements is not only important for large investors, but also MSME players so that you make wiser financial decisions—both for protecting personal assets and business investment strategies. Therefore, let’s look at the complete information!
Why do gold prices rise over time?
In principle, the increase in gold prices occurs because demand is greater than supply. As is true in basic economic laws, when demand increases but supply does not increase, prices will tend to rise.
However, what you need to understand more deeply is what causes demand for gold to continue to increase over time. This is what we will discuss further in this article—because by understanding the factors driving gold demand, you can be better prepared to face price fluctuations and make wiser financial decisions.
1. Global Economic Uncertainty
Berbeda dengan saham atau obligasi, emas bersifat konkret. Emas juga memiliki likuiditas tinggi di pasar global dan diakui sebagai aset berharga secara universal—terlepas dari kondisi politik maupun ekonomi saat itu.
Unlike stocks or bonds, gold is concrete. Gold also has high liquidity in global markets and is recognized as a valuable asset universally—regardless of political or economic conditions at the time.
For example, during the COVID-19 pandemic yesterday, many countries experienced a recession and investors flocked to buy gold because they were worried that the value of other assets would fall. So, this surge in demand automatically drives up the price of gold, your Profit Friend.
2. Inflation
Inflation is a situation where there is a lot of money in circulation. Even though it looks good, this situation is actually disturbing. Because this increase in money circulation is not a sign that consumer purchasing power is increasing, but because the price of goods continues to soar – and in turn the Rupiah exchange rate weakens.
As an illustration, if previously with 10 thousand you could buy 5 glasses of iced tea, because of inflation now you only get 3 glasses for the same amount of money. This shows that the value of money is weakening.
So, in a situation like this, gold is seen as a hedging tool because its value is not easily eroded. When inflation worsens, many people shift their assets to gold, which has a stable intrinsic value.
In addition, when inflation is high, real interest rates usually fall or even become negative, so investing in gold—which does not produce interest—is considered safer.
3. Weakening value of the US Dollar
The price of gold on the international market is calculated in US Dollars (USD). That’s why the USD has an inverse relationship with the price of gold. When the dollar weakens, the price of gold tends to rise—and vice versa.
So the weakening of the USD makes demand for gold tend to increase because the price of gold is more affordable for investors who use other currencies and the value of the currency is stronger against the USD.
For example, if the USD weakens against the Rupiah, Indonesian investors may be more interested in buying gold because the price is relatively cheaper. Due to this increase in demand, gold prices may rise further.
Even so, the relationship between the US dollar and gold prices is not always linear. There are times when the dollar weakens, but the price of gold does not necessarily increase due to other factors.
4. Central Bank Monetary Policy
Central banks in various countries, especially the Federal Reserve (The Fed) in the United States, play an important role in influencing gold prices through their monetary policy.
When the Fed lowers interest rates or carries out quantitative easing (printing more money to stimulate the economy), the returns from investment instruments such as deposits or bonds become less attractive. As a result, investors tend to switch to gold which is considered more stable.
Apart from that, the central bank itself also stores gold as part of its foreign exchange reserves. When they increase gold reserves—because they want to maintain currency stability or face economic risks—global demand for gold rises so that the price is also pushed up.
5. Demand for Physical Gold Continues to Increase
Physical demand for gold, especially from the jewelry sector and technology industry, also influences gold prices. Examples include India and China which have a huge demand for physical gold due to cultural factors, such as weddings and traditional celebrations. On the other hand, gold is also widely used in the electronics industry because of its highly conductive and corrosion-resistant properties.
However, because the amount of new gold supply each year is relatively small compared to the total stock of gold already in circulation, gold prices are very sensitive to spikes in demand.
As a result, when demand increases, while supply remains constant or even decreases, the price of gold is automatically pushed up.
So, those are the five main factors that cause gold prices to continue to rise over time. In essence, this phenomenon is inseparable from the principle of supply and demand. Where the amount of gold is limited—considering this is a natural resource—while demand continues to increase.
As an MSME player, you cannot control the price of gold or the global factors that influence it. However, you can be wiser in responding to this trend.
For example, by making gold a form of asset diversification or making it a reference in financial planning and determining product prices. Especially if your raw material is related to gold.
The most important thing is to stay updated with market conditions, so that your business decisions remain relevant and adaptive. Apart from that, make sure you have used the Labamu application to manage your business as well as financial and operational trends.
Come on, hurry up and download the application via Google Play or the App Store and discover the features that will make your business neater, more efficient and ready to grow!
