Gold has been one of the oldest markets in the world. For centuries this particular precious metal has been used as a method of exchange as well as a symbol for wealth. Now it is seen as a safe haven asset for traders in the financial markets. Gold is currently considered to be one of the best trading instruments for traders and investors wanting to hedge against potential weaknesses in equity markets, bonds and other major currencies.
Factors influencing price of Gold
- Gold Reserve: The amount of Gold held by Central Banks around the world impacts the price of this precious metal. The more the Central Banks buy and store away the more the price rises.
- The Value of the US Dollar: Just like most commodities, the price of Gold is related to the value of the US dollar. Gold is also quoted in US dollars, which means anything affecting the strength of the USD will also affect Gold. Locally, Gold is priced in AUD so the same factors apply when looking at the Gold price in Australian Dollars.
- Demand for Gold: Most of the demand for Gold lies heavily in the jewellery sector. In many cultures, Gold is a symbol of wealth and is therefore bought in volumes. For example, the Indian wedding season is a period where the demand for Gold rises, this will then raise the Gold price. As well as jewellery demand for Gold is seen in the technology sector and us used in the manufacturing of medical devices, in this case, the price of Gold will be affected by supply and demand.
- Safe haven asset: In times of financial crisis, investors and traders will turn to Gold to try and mitigate as much risk as possible. The reason for this is the value of Gold rises in crisis as well as its price. Some people like to hedge Gold in times when major economic decisions are made such as inflation rates.
- Gold mines: 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 – 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. Eightcap is here to help you find your feet when trading the financial markets.