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Gold Trading: what affects the metal price | FxPro

Gold Trading: what affects the metal price | FxPro

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For thousands of years, gold has been considered a universal currency. So far, in the long run, it tends to increase in price. Many traders gravitate towards this precious metal because it is a physical product that actually exists and can be touched. This is something real, and not just a virtual code, as in the case of cryptocurrencies.

Gold is not a product of HYPE, it is an asset for conservative investors, whose first goal is to save capital. This is why they try to buy gold contracts or spot options, regardless of the current value.

How to trade gold

There are many methods of trading gold online, including, as we mentioned above, spot and futures markets, as well as options, funds and shares of gold mining companies. Precious metals such as gold are highly liquid.

It is interesting to note that the daily trading volume of this yellow metal is higher than that of most currency pairs, with the exception of flagships like EURUSD, USDJPY and GBPUSD. This means that the cost of starting a gold trade is often quite small. Available narrow spreads and high liquidity make speculation on the value of gold popular among a large number of CFD traders.

Many investors invest their capital in gold, considering it as a safe-haven asset. Traders shift their funds to safe investments during periods of extreme market volatility, or during dramatic downturns. Investing in metals helps them reduce potential risks, as the price of gold tends to rise during turbulent times.

Of course, the options for making transactions for those who just want to save capital by investing it in gold, and those who want to make transactions almost every day, look like completely different tools. After you choose the appropriate one, develop a strategy for applying it. For example, in almost all cases, you will need to track news and events that affect gold prices, as well as the share prices of mining companies.

Physical metal (bullion or coins)

An ingot is a group or large part of a precious metal that is measured by weight. The advantage of buying physical gold is that you are fully responsible for it: in some cases, you can even take it out of storage and put it in your personal safe. However, not all banks do this: most often, you will not be able to pick up bullion from the branch, and they will still be listed on your metal account as names with a changing price.

Of course, there is practically no question of profit here, it is rather a way to save capital, sometimes (but not always) overtaking inflation.

Spot Gold CFDs

This is already a trading option that is familiar to many traders. CFDs on the value of physical gold do not differ in their essence from CFDs on any other assets. You try to open buy deals at the lowest price in the hope of its growth, and sell deals – at a higher cost.

The XAU gold market symbol is used to form the XAUUSD pair. This means that by opening a long position on a gold CFD, the trader simultaneously buys gold and sells the dollar. Conversely, short positions sell gold and buy US dollars.

Gold Futures

A gold futures contract is an agreement to buy or sell gold at a certain price in the future. Investors use futures to manage their price risk.

Because gold futures contracts are traded on a centralized exchange, they offer more options and flexibility than trading metals directly. They can be bought and sold at the discretion of investors, and can also be used to properly hedge or diversify holdings of other financial assets.

Technically, futures can be used to obtain agreements for the supply of physical goods, but traders rarely do this. As a rule, CFDs on these assets are traded instead.

Another disadvantage of gold futures is that the contracts are limited in time. This means that they can be subject to a rollover fee if the investor wants to implement a long-term strategy of investing in gold. In addition, most exchanges offer high minimum futures contract sizes, which actually blocks most retail investors.

Gold mining stocks

The securities of those companies that mine gold are highly correlated with the price of this metal, and even have high volatility. If the price of Gold changes by 5%, the share price of gold mining companies may start moving in the same direction, adding 10% or more (based on historical data and not an investment recommendation).

Some of the most prominent players in the gold mining industry are listed on the Australian stock exchange. Among them are Barrick Gold, Franco Nevada and Newmont Mining.

Gold ETFs

Exchange-traded funds (ETFs) can track the movement of gold itself or a basket of publicly traded shares of gold mining companies. Investing in ETFs implies greater diversification compared to making transactions on securities of only one company. There are also mini-gold ETFs that trade in smaller volumes.

Factors affecting the value of gold

History shows that investors take into account various fundamental factors when trading this asset. Of course, the intrinsic value of metal is limited, but every year it becomes less and less on earth, and therefore the increase in its value is only a matter of time. Although the price of gold is not controlled by any central authority, there are a number of factors that affect the movement of the precious metal's chart. So, let's see what the price of gold depends on.

Inflation rate

Inflation is often a sign of economic growth, during which time Central banks are putting more currency into circulation. This, in turn, leads to a devaluation as more banknotes become available. Subsequently, investors flock to gold, which retains its value during a period of high inflation. Moreover, such instability often leads to an increase in the price of Gold.

Conversely, during deflation, gold is no longer used as a hedge, and its price falls as investors move into other assets.

Global economy

Political instability contributes to the uncertainty of global growth. All this, of course, affects the price of gold on the same principle as in the case of higher inflation. When Central banks increase their reserves, they limit the supply in the market, which consequently leads to higher prices. Conversely, if a country decides to sell a precious metal and floods the market with it, of course, this affects the price of gold, reducing its value.

Moreover, the instruments of pressure from Central banks (interest rates, as well as changes in monetary policy) change the main global economic conditions, which, in turn, can affect gold.

Supply and demand

Most of the global demand for gold comes from the jewelry market (50%), as well as from investment purposes (40%). Increased demand with low supply can lead to an increase in the price. On the other hand, an oversupply with weak demand leads to a decline in the cost of a troy ounce.If demand for the precious metal is high and supply remains low, the price of gold will rise, and vice versa.

US Dollar

The precious metal is denominated in dollars: this means that the dynamics of the dollar exchange rate has a significant impact on the price of gold. In normal circumstances, the Gold exchange rate has an inverse relationship with the US dollar, that is, when the dollar price falls, the value of gold increases. The reason lies in the fact that when the US currency begins to lose ground, traders move to other financial assets. Such an increase in demand pushes up prices.

Geopolitical situation

The price of gold is also affected by what is happening in the world in general and in the United States in particular. The metal's status as a popular safe haven for investment means that it does well in times of geopolitical turmoil. During times of war, trade disputes, disruptive national elections, and other major events, demand increases as investors look for a stable store of value, leading to higher gold prices.


Volatility is the strength of market dynamics or simply the degree of activity of price fluctuations. This parameter is best monitored or measured using the ATR (Average True Range) indicator. Usually, when the daily ATR is higher than the average for the last 15 days, the metal can be more volatile, which makes it attractive for intraday traders.

Gold is a commodity that has strong movements most of the time, making it a suitable asset for trend-following strategies and channel breakout trading. The metal tends to move along strong long-term trends. For example, the gold market will be considered bullish if the monthly closing price is at its highest level in the last 6 months.

Trading time

The price of gold is also affected by the trading session period. So, gold is almost always quite liquid, but it becomes most popular at the beginning of the London and during the opening of the New York sessions.

The trading time of the London and New York markets is probably the most active period for gold quotes. Here, traders can expect more liquidity and volatility. Remember that trading involves risk, and you should never invest more than you can afford to lose.

Gold vs Silver

Gold is by far the most popular metal among both investors and traders alike. However, if you're looking for an even more dynamic metal, look out for silver.

The price of Gold is usually easier to predict, since gold is mainly used as a safe haven asset, and therefore rarely makes sharp movements during the day. Unlike silver and other precious metals, it does not have too wide industrial use, and therefore, in general, less factors affect the price of gold than the cost of silver.


There are many effective strategies for successful metal trading. For example, you can take into account the seasonal behavior of gold. Historically, it makes the strongest movements in September and in the first two months of the year. So, this is quite a convenient time to make long-term transactions. At the same time, in March and October, volatility is usually lower, and during these periods, investors try to shift funds to gold to save capital.

In this article, you will learn what influences the price of gold, in what form it is best to buy and sell it, and when it is optimal to make transactions on this metal. Just get started!

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