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This year, three factors influence the way gold prices move: inflation, low opportunity cost, and skepticism.

Inflation

Frequently, gold is the go-to investment whenever currencies decline. Prices and currency strength normally exhibit an inverse relation. Gold prices surge as inflation projections escalate, and vice versa. In the last few years, overall inflation has dropped, as well as the communal calls for moderate inflation boost.

Due to failure to hit inflation goal, the Bank of Japan was pressured to levy negative rates. Low capacity utilization and high unemployment rate have led to disinflationary pressures in Europe. But inflation in the United States has climbed steadily as of late. Not to mention Federal Reserve’s rate increases ignited escalating inflation forecasts.

Low Opportunity Cost

Thanks to low inflation rate and reservations revolving international markets, the flow of capital toward the yellow metal and other investments. Low rates in different parts of the globe lowered demand for sovereign debt securities since capital moved out of China, Europe, and the United States.

Just this year, benchmark rates remained low despite several years of expanded monetary policy. US policymakers have implied raising rates slowly but the BOJ and the European Central Bank have pushed rates into negative territory. Meanwhile, other central bankers are keen on abandoning normalization or slashing rates.

Skepticism

Many investors incorporate the precious metal as a hedge, seeking to get protection against perils caused by worse economic conditions or other dangers. Aside from that, gold is considered a great tool to counter effects of instability or uncertainty. Usually a hedge in portfolios, gold’s demand was ignited by anxieties of investors and its first use as a physical currency.

In the first two months of 2016, considerable uncertainty surrounded the global economy. Low commodity prices continued to impact enormous economies. Degenerating Chinese economy not only affected the Shanghai Stock Exchange, but also equity markets worldwide.

What makes the metal tick? Inflation, low opportunity cost, and skepticism.