Final answer:
Gold price fluctuations primarily stem from demand shifts interacting with inelastic supply, and high inflation can slow market equilibrium adjustments, causing surpluses or shortages. Historically, the gold standard and monetary policies have significantly influenced gold prices.
Step-by-step explanation:
The main sources of gold price fluctuations are shifts in demand interacting with highly limited and inelastic supply. When the supply of gold does not readily expand to meet increasing demand, the price of gold increases. This inverse relationship reflects a fundamental economic principle.
High and variable inflation can exacerbate this effect by weakening the incentives for the economy to adjust to price changes. This can lead to a more erratic and slow equilibrium process, occasionally causing market surpluses or shortages.
Historically, changes in the gold standard and international monetary policies have greatly influenced the gold market. For instance, when countries exchanged their dollars for gold, the increasing demand for gold, coupled with a constrained supply, led to higher gold prices. This eventually affected the value of the US dollar on the international market during periods such as when the US temporarily sold its gold reserves to stabilize prices.