Gold Prices 2012: What Effects the Price of Gold?

From television ads to signs in store windows, offers of “cash for gold” have been popping up with increased frequency. Gold prices 2012 are undeniably high—but how did they get there?

The price of gold is affected by several factors. The condition of the United States economy as a whole is a defining factor for gold prices; 2012 figures clearly demonstrate the inverse relationship between the two. When the U.S. economy is strong, people tend to invest in dollars rather than precious metals because the value of the dollar is strong. This drives the demand, and thus the price, of gold down. However, when the economy is doing poorly, as has been the case for the past several years, prices rise.

Inflation causes a rise in the price of gold; 2012 prices are evidence of this connection. The buying power of $100 in 2000 is equivalent to the buying power of $131.63 in 2012. Thus, the rise of gold prices is also partially due to the fact that a dollar doesn’t stretch as far.

In the 1970s, the price of gold behaved similarly, seeing significant growth. Like the past decade, it was a time of inflation and the price of this precious metal rose accordingly. In late 1979 and early 1980, a time of political instability, gold prices spiked to $850 per ounce. When you consider that a dollar had nearly three times the buying power in 1980 as it does today, the similarities of this market with the market in more recent years become more evident.

Gold prices dropped as the 1980s got underway. Within a year or two the cost of gold fell to less than half of its peak value at the beginning of the decade, and maintained fairly steady for the next 20 years.

Gold prices have been rising steadily since the beginning of the new millennium. In the year 2000, the price of gold was below $300 per ounce. January gold prices 2012 were approximately $1,600 per ounce—over five times what they were 12 years before.

Thus far gold prices 2012 have been continuing on an upward slope: by the end of February 2012, the cost per ounce had climbed to over $1,750 per ounce. While economists disagree on exactly when and at what rate gold prices will peak, the vast majority agree that the cost of gold will not continue to rise if the economy improves.

While there has been much speculation about the future of gold prices, 2012 rates remain high to date. It’s been said that history repeats itself and the 2012 gold prices are an excellent example of history in the making.

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Category: Gold Prices