5 Key Factors That Influence Gold and Silver Prices

Published on: September 5, 2025

The prices of gold and silver are in constant flux, driven by a complex interplay of global economic forces. Understanding these key drivers can help you make more informed investment decisions.

1. Monetary Policy and Interest Rates

Actions by central banks, particularly the U.S. Federal Reserve, are a primary driver. When interest rates are low, non-yielding assets like gold and silver become more attractive compared to bonds or savings accounts that offer meager returns. Conversely, when interest rates rise, the opportunity cost of holding gold increases, which can put downward pressure on its price.

2. Inflation and Currency Strength

Gold is widely regarded as a hedge against inflation. When the purchasing power of fiat currencies like the U.S. dollar erodes, investors often turn to gold to preserve their wealth. As a result, the price of gold (denominated in dollars) tends to rise during periods of high inflation. A weaker dollar also makes gold cheaper for foreign buyers, increasing demand.

3. Geopolitical Risk and Uncertainty

Gold is the ultimate "safe-haven" asset. During times of global instability—such as wars, political crises, or pandemics—investors seek safety outside of traditional financial markets. This "flight to safety" increases demand for gold, often causing its price to spike.

4. Industrial and Jewelry Demand

This factor is particularly significant for silver. Over half of all silver demand comes from industrial applications like electronics, solar panels, and EVs. A growing global economy can boost silver prices. For gold, while industrial use is smaller, jewelry demand (especially from China and India) accounts for a significant portion of its market and can influence prices.

5. Central Bank Buying

Central banks around the world hold gold as a reserve asset. In recent years, central banks in emerging markets have been significant net buyers of gold to diversify their reserves away from the U.S. dollar. Large-scale buying (or selling) by these institutions can have a substantial impact on the market.