Gold is considered a safe-haven asset by many investors and brokers. The commodity is highly sought-after during times of economic uncertainty and high market volatility as a means of protecting investment portfolios.
Many traders interested in trading Gold turn to UFX’s commodity trading platform to take full advantage of price fluctuations using the platform’s unique MassInsights™ Technology, which provides an aggregated real-time view of traders’ decisions. Before opening positions on Gold, it’s important to understand the main factors that influence the price of this ever-popular commodity.
Supply and Demand
Like every asset, the price of Gold rises when demand is higher than the available supply. Conversely, if the market is oversupplied due to stagnant or lower demand, prices fall. Gold is widely used in the tech sector, but its main purpose is, of course, as the raw material for jewellery. Demand can therefore be seasonal, tending to rise ahead of major festivals in China, India, and the Middle East.
Uncertainty and Market Volatility
In times of economic uncertainty and geopolitical strife, investors often turn to Gold. This phenomenon – called flight-to-quality – usually occurs when there is high volatility in the markets and traders want to move their capital to safer investments. This was particularly relevant following the financial crisis in 2007, the European debt crisis in 2011, and the UK’s Brexit referendum in 2016. When traders turn to Gold as a safe-haven asset, demand rises, pushing the price higher.
The U.S. Dollar
Every decision made by the Fed regarding the U.S. economy, inflation, and employment can influence the U.S. Dollar. The changing value of the greenback can therefore have a direct effect on Gold prices, which are denominated in USD. The relationship between USD and Gold is described as a negative correlation, as they tend to move in opposite directions.
U.S. Monetary Policy
U.S. monetary policy can also have a major impact on Gold. Changes in interest rates will always affect the U.S. Dollar: when rates increase, they reduce inflation, causing the greenback to appreciate, which, in turn, has an impact on the price of Gold.
Considering these points is crucial for investors interested in trading Gold. Choose a broker who understands these factors.