From ancient civilizations to the modern age, individuals have relied on Gold for beauty, industrial uses, and as a store of value. This precious metal’s history has been an investor’s go-to during times of economic instability, political upheaval, and even during rallying markets.
Given its high global demand, Gold’s price fluctuations may be triggered by a large number of global factors such as inflation, supply, demand, and even trader sentiment, keeping the XAU/USD continuously on the move.
Gold’s price is, in many ways, influenced by the same factors that affect other commodities. However, its wide-scale popularity and stored value increases its exposure to greater gains, as well as losses.
The key factors affecting gold’s price are:
Gold is used by various countries’ central banks to stabilize the currency. Having large stores of Gold in a country’s central bank system is seen as a tool for backing the value of their money with a hard commodity.
When a currency becomes devalued, the government may authorize a large purchase of gold for its central bank. At times these deals will be large enough to impact the Gold market since traders recognize large quantities being purchased or transferred and therefore being removed from the open market for trade, triggering a price shift.
When executed properly by central banks, it offers a quick fix to the currency by instilling trust once again.
As we have seen, Gold does not move based on the demand for consumption, like the Oil or Coffee markets. Supply and demand is influenced by traders, jewelry buyers, and even governments.
When trading this commodity, it is beneficial to review all aspects of the market and consider how various world events can either move Gold’s price higher or lower.