Gold Prices and MSMEs: What’s the Connection?

According to Treasury, gold has symbolized wealth and served as one of the key foundations of the global financial system for thousands of years. However, as an MSME (Micro, Small, and Medium Enterprise) owner who’s often more focused on daily operations, marketing strategies, or inventory, you might rarely pay attention to gold price movements.

Even though it may seem distant from the business you’re running, in reality, gold prices can have both direct and indirect impacts on your business continuity.

That’s why understanding gold price trends is not only important for major investors but also for MSME players—so you can make wiser financial decisions, whether for protecting personal assets or shaping business investment strategies. Let’s dive into the full explanation!

Why Does the Price of Gold Keep Rising Over Time?

At its core, the rise in gold prices happens because demand exceeds supply. As stated in basic economic principles, when demand increases but supply does not follow, prices will tend to go up.

However, what you need to understand more deeply is what drives the continued increase in gold demand over time. That’s exactly what we’ll explore further in this article—because by understanding the key factors behind gold demand, you’ll be better prepared to handle price fluctuations and make wiser financial decisions.

1. Global Economic Uncertainty

Unlike stocks or bonds, gold is a tangible asset. It also has high liquidity in global markets and is universally recognized as a valuable asset—regardless of political or economic conditions.

This is why gold is referred to as a safe haven during times of global economic uncertainty. It has the ability to preserve its value even in the worst-case scenarios.

For example, during the COVID-19 pandemic, many countries fell into recession, and investors rushed to buy gold out of fear that the value of other assets would plummet. This surge in demand automatically pushed gold prices higher, dear Labamu friends.

2. Inflation

Inflation occurs when the supply of money in circulation increases significantly. While this might seem like a positive sign, it’s actually quite concerning. This increase doesn't necessarily mean consumers have more purchasing power—it often reflects that the prices of goods are rising continuously, eventually weakening the value of the Rupiah.

For example, if you used to be able to buy 5 glasses of iced tea with 10,000 Rupiah, inflation might reduce that number to just 3 glasses for the same amount. This illustrates how the value of money diminishes.

In such situations, gold is viewed as a hedging tool because its value is not easily eroded. When inflation worsens, many people shift their assets into gold, which tends to retain its intrinsic value.

Additionally, during periods of high inflation, real interest rates often drop—or even turn negative—making gold, which doesn’t yield interest, appear to be a safer investment choice.

3. Weakening of the US Dollar

Gold prices in international markets are denominated in US Dollars (USD). That’s why the USD has an inverse relationship with gold prices—when the value of the dollar weakens, gold prices tend to rise, and vice versa.

A weaker USD makes gold more affordable for investors using other currencies that are stronger relative to the dollar. As a result, demand for gold increases, which in turn drives prices up.

For example, if the USD weakens against the Indonesian Rupiah, Indonesian investors may find gold relatively cheaper and be more inclined to buy it. This surge in demand can then push gold prices even higher.

However, it's important to note that the relationship between the USD and gold prices isn’t always linear. Sometimes, the dollar may weaken without a corresponding increase in gold prices, especially when other influencing factors are at play.

4. Central Bank Monetary Policy

Central banks in various countries—especially the Federal Reserve (The Fed) in the United States—play a crucial role in influencing gold prices through their monetary policies.

When the Fed lowers interest rates or implements quantitative easing (printing more money to stimulate the economy), returns from investment instruments like deposits or bonds become less attractive. As a result, investors tend to shift their funds into gold, which is seen as a more stable asset.

In addition, central banks themselves hold gold as part of their foreign exchange reserves. When they increase their gold reserves—often to maintain currency stability or prepare for economic risks—global demand for gold rises, which in turn pushes its price higher.

5. Rising Demand for Physical Gold

The demand for physical gold—particularly from the jewelry sector and technology industry—also plays a significant role in influencing gold prices. For instance, countries like India and China have high physical gold demand due to cultural reasons, such as weddings and traditional celebrations. On the other hand, gold is widely used in the electronics industry because of its excellent conductivity and resistance to corrosion.

However, the supply of newly mined gold each year is relatively limited compared to the total gold stock already in circulation. This makes gold prices highly sensitive to spikes in demand.

As a result, when demand increases while supply remains constant or even declines, gold prices are naturally pushed higher.

So, those are the five main factors behind the continuous rise in gold prices over time. At its core, this phenomenon revolves around the basic principle of supply and demand—gold is a limited natural resource, while the demand for it keeps increasing.

As an MSME (Micro, Small, and Medium Enterprise) owner, you may not be able to control the price of gold or the global factors that influence it. However, you can respond to these trends more wisely.

For example, you might consider gold as a form of asset diversification or use it as a reference in financial planning and pricing decisions—especially if your raw materials are related to gold.

The most important thing is to stay updated with market conditions, so your business decisions remain relevant and adaptive. And don’t forget to use the Labamu app to manage your business, track financial trends, and streamline operations all in one place.

Go ahead—download the app now via Google Play or the App Store and discover features that can help make your business more organized, efficient, and ready to grow!