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Gold Trading

15.09.2020

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Gold trading – what affects the price of gold

Gold has long been a popular trading instrument.

Compared to even our current currency, gold has an intrinsic value and, at the same time, it is a commodity traded in several markets.

Gold trading – historical background

1792 is marked as the time of the most important movements for the gold coin. Just under two centuries later, in 1971, President Richard Nixon brought the United States out of the gold standard, and economic changes dramatically affected the price of gold in the world.

On January 21, 1980, gold prices climbed $ 35 an ounce to $ 850 an ounce, or $ 2,398.21 after adjusting for inflation. On March 19, 2008, gold peaked at $ 1,022.40.

CFDs on gold and factors affecting the price of gold

Of all precious metals, gold is the most valued investment and is generally bought as a risk diversification method, including through the use of futures and derivatives. As in other markets, gold on the exchange is subject to significant volatility.

The price of gold is also influenced by supply and demand, but unlike most commodities, the economy and gold stocks are more influential than consumption.

Given the huge amount of gold produced throughout the year, trading in spot metals is profitable because the price of gold depends primarily on changes in demand, rather than changes in annual production.

According to the World Gold Council, in recent years, the annual production of gold has been around 2,500 tons. Of this amount, 2,000 tonnes are used in jewelry or industrial/dental manufacturing, with the remainder for retail investors and exchange-traded funds.

The price of gold on the exchange – what influences it?

CFDs on Gold and central banks

The cost of gold is closely related to interest rates: as interest rates rise, the price of gold, which is not profitable, tends to decline, and vice versa.

As a result, the price of gold can be correlated with the central banks according to the monetary policy decisions they make in accordance with the interest rates.

The value of gold on the exchange hedging against stock market crashes

Like all other precious metals, gold can be used as a hedge against inflation, deflation, or currency devaluation.

Gold Trading – Jewelry and Industrial Demand

Jewelry still accounts for over two-thirds of the annual gold demand, with India being the largest consumer by volume, followed by China and the United States.

Industrial, dental, and medical uses account for about 12% of the demand for gold, as this metal has high thermal and electrical conductivity.

In recent years, jewelry processing has grown into a multi-million dollar industry. People can make money by selling old or broken jewelry to local gold buyers or online.

War, natural disasters, and other factors affecting the price of gold

When dollars were converted to metal by the gold standard, they were considered money, but most still preferred to use paper bills. Many feared bank failures and did not use them.

This situation arose in the United States during the Great Depression of the 1930s, which led to President Roosevelt declaring a national emergency and issuing Executive Order 6102 “Banning the Storage of Gold Coins, Gold Bars, and Gold Certificates in the United States.”

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