The Gold market is one of the oldest in the world, and for centuries Gold has consistently been used as a medium of exchange and a store of wealth. Gold is widely viewed as form of ‘anti-money’, and a safe haven asset. For this reason, it is one of the best trading instruments for those wanting to hedge against potential weakness in equity markets, bonds, or major currencies.
Factors influencing price of Gold
- The Gold price is influenced by the level of perceived risk in global markets, the value of the US dollar, demand for Gold from the jewellery industry, and anything affecting the Gold mining industry. This makes the Gold market very dynamic.
- The Gold price is usually quoted in US dollars, which means anything affecting the strength of the USD affects Gold. Locally, Gold is priced in AUD, so the same factors apply when looking at the Gold Price in Australian Dollars.
- Gold is used to make jewellery, and many cultures use Gold as store of wealth. The Indian wedding season is a period during which demand for Gold rises.
- The Gold price usually rises when investors become averse to owning risky assets. This can result from geo-political issues, corporate bankruptcies, or concerns about inflation, interest rates, global growth or equity valuations. The Gold price usually falls when these concerns ease.
- Finally, as a Gold trader, you will need to be aware of the issues facing the Gold mining industry. Each mine has a unique cost of producing an ounce of Gold, and if the market price falls below that cost, the mine will often suspend operations. This reduces the overall supply of Gold, and ultimately leads to higher prices. Gold producers sometimes hedge the price of Gold, which adds another dynamic to the Gold market.
Advantages and disadvantages of trading Gold
Reading the Gold chart
The Gold price rallied from a low of close to $200 in 1999 to over $1,900 in 2011. This 12-year rally was underpinned by Central Bank buying, the introduction of Gold ETFs and concerns about US debt and the US dollar.
The 2011 peak in the Gold price coincided with the low point of a substantial correction in global equity markets. Since that time, asset markets have exhibited historically low volatility, which has kept the Gold price under pressure.
As of 2018, for Gold the outlook is mixed – though an uncertain outlook is bound to lead to trading opportunities. If volatility returns to equity markets, the Gold price could rally once again. Rising interest rates or inflation could also cause the price of Gold to rise again. If global growth continues and equity markets continue higher, Gold may fall further. Both scenarios will create opportunities for traders.
How can I trade Gold online?
There are lots of resources around the web to help you learn more about becoming a Gold trader. However, the best way to learn is to open a live or demo account and begin following the price action and news around the Gold market. Once you feel ready you can make your first trade.