Gold’s popularity has grown over the past
few years as an alternative currency trade. Many traders look to the precious
metal as a hedge against inflation and storage of value – thus, it is often
referred to as a “safe-haven” investment. Historically, gold prices tend to
move inversely with the U.S. dollar, however with rising geopolitical
uncertainty over the past 5-years this correlation is no longer as evident. In
response to greater demand and product diversification, gold has begun to trade
relative to other currencies as well
Price drivers
Gold is affected by the overall health of
the global economy – this is measured by GDP growth, inflation, employment data
and interest rates. Additionally, the monetary policies of some of the largest
central banks of the world, and whether they are tightening or expanding their
policies also greatly influence the price of gold. Supply/demand dynamics as
well as financial market sentiment are other factors investors should take into
account when trading the yellow metal.