As long as the Feds continue their quantitative easing to boost the economy, gold price will benefit from the easing. Quantitative easing is an effort by the US Government to pump in more money into the economy to prevent the country from falling into a recession.
Take for example in mid to late February when words spread that quantitative easing will be stopped earlier then planned. Investors begin diluting gold investment in exchange for cash for other investments as the economy is considered stable once the easing stops. That resulted in the gold price dipping to a record low of USD1572.30/oz. Gold lost about USD98.10 in a matter of 2 weeks during the month of February as shown below:
2. Recession and Low Interest Rates
If the United States fall into a recession, investors in general tend to move their money into safer havens such as Gold. That causes a rise in demand for gold, resulting in an increase of gold price.
3. Production Cost
Cost of mining gold has risen tremendously. Apart from the rise in hardware cost, overhead cost such as higher salary and health insurance tend to affect gold prices. It is said that if gold price falls below USD1600/oz, mining companies have no other choice but to reduce production as a cost cutting procedure. In fact during the 90's when gold price fell to USD250/oz, a lot of mining companies had to shut down.
Summary
The current key factor that gold investors are currently looking at is on how the quantitative easing will pan out. With money now being freely printed and the continue rise of United States debts, most gold experts (looking at the longer horizon) expect that a recession will be inevitable.
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The gold prices are laid low with numerous factors like economic downturns and upturns, demand policy selections by governments and turmoil's in war torn countries. Gold has invariably occupied an outstanding position in decisive the world economy. The worth of gold is taken into account as a serious indicator of the standing of worldwide economy.
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