Why Do Gold Prices Rise? Global and Local Factors
Why do gold prices rise? We look in detail at how inflation, central bank decisions and the dollar exchange rate affect gold prices in Turkey and worldwide.
One of the questions people who put their savings into gold most want answered is why gold prices rise. The prices that keep changing on the screens are not random. Behind these swings lie the global economy, monetary policy and the behaviour of buyers. Knowing the basic factors that make gold gain value is the first condition for making informed decisions.
Gold is a metal that exists in limited quantities in nature and has physical substance. Unlike paper money, it cannot be printed at will. This makes it a favoured asset in times of economic uncertainty. The forces that push its price up usually come from a combination of global uncertainty and local market conditions.
Global crises and the safe haven effect
Geopolitical tensions, wars or major economic shocks on a global scale steer buyers towards gold, which is seen as a safe haven. In uncertain times, confidence in risky assets such as shares falls. Savers want to move their money into assets they believe will hold their value.
Rising demand pushes prices up. Looking back, the ounce price of gold has often reacted quickly during international crises. When you wonder why gold prices rise in a crisis, what you are seeing is largely a worldwide reflex to seek protection.
Central bank interest rate policies
One of the strongest mechanisms affecting gold prices is the interest rate decisions of major central banks, above all the US Federal Reserve (Fed). Gold pays its owner no interest or regular income. So when interest rates are high, keeping money in interest-bearing accounts can look more attractive, and interest in gold may fall.
When central banks cut rates, the return on cash falls. Part of the capital looking for returns may move into gold. The ounce price usually finds support when rates are falling. You can follow how markets react to such decisions on our market screen.
Inflation and purchasing power
Inflation means the purchasing power of money shrinks over time. When inflation rises, savers turn to tangible assets to stop their money losing value. Gold has traditionally been seen as a hedge against inflation.
When prices are rising across the board, demand for gold also tends to rise. When confidence in the value of money is shaken, turning to gold is how many people try to protect their savings. That is why, in periods of high inflation, many people prefer to buy small amounts of gold at regular intervals.
How the exchange rate affects local prices
Gold prices in Turkey do not depend on global developments alone. The base price of gram gold is found by combining the dollar value of the ounce with the dollar exchange rate. We explain this calculation in our guide what is a troy ounce of gold.
Even if the ounce price stays the same, the gram price rises if the dollar rate rises. When the ounce and the dollar rise at the same time, the increase in gram gold is even more pronounced. That is why gold buyers in Turkey benefit from following both global and local developments.
Central bank gold purchases
Another important factor is gold buying by countries through their central banks. Countries hold gold to diversify their reserves and increase these reserves from time to time.
When large central banks buy significant amounts of gold on the market, demand rises, which supports prices. Such institutional purchases are an important factor that can shape long-term price trends.
Table of factors affecting prices
| Factor | Direction | Possible effect on the gold price |
|---|---|---|
| Global interest rates | Falling | Usually upward |
| Inflation | Rising | Usually upward |
| Geopolitical crises | Increasing | Usually upward |
| Global value of the dollar | Strengthening | Usually downward (in ounce terms) |
| Dollar rate (against the lira) | Rising | Upward (for gram gold) |
To see what a certain amount is worth today, use the calculators on our tools page. If you would rather ask your questions in person, visit our store in Ümraniye, Istanbul. Our address is in the contact section.
This article is for general information only and is not investment advice.
Frequently Asked Questions
Why don't gold prices change at the weekend?
International markets are closed at weekends. So the price formed at Friday's close stays largely unchanged until markets open on Monday. The small differences seen at weekends come from buy/sell adjustments on the local market.
Do prices fall when gold production rises?
If supply rises significantly, it can put pressure on prices. But gold mining is an expensive and lengthy process, so a large increase in supply in a short time is unlikely.
What happens to gold when the dollar strengthens globally?
When the dollar gains against other currencies, the ounce price of gold usually comes under pressure. But this is a general tendency, not a rule; other factors affect the price at the same time. In Turkey, when the dollar rate rises, the gram gold price goes up.
At Erya Gold Kuyumculuk you can follow live buying and selling prices, and reach our store in Ümraniye with any question.
