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What Moves Gold’s Price?

Date Modified: 26/07/2023

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.

Factors Affecting Gold’s Price

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:

  • Inflation- When a currency experiences greater than normal inflation, traders may prefer to store their value in gold since it is relatively stable and has historically held its value well.
  • Supply- Like other commodities, supply has the power to lower Gold’s price if a market becomes saturated or raise the price if scarce. New Gold discoveries increase availability where there may have been a shortage.
    Unlike some consumable commodities such as Oil and Corn, Gold is still tradeable even after being used. If the price goes higher, it is more advantageous for miners to mine for new Gold. If the price drops, they may not mine as much resulting in less supply in the market.
  • Demand- Demand for Gold can be triggered by the demand for the metal in jewelry, industrial uses, and trading. If demand is greater than the supply, the price may go up. On the other hand, if demand is low and the market has a surplus, the price may drop to attract buyers or it may rise depending on buyer demand.
  • The US Dollar- Gold is priced in dollars making the US currency a player in how attractive the commodity is to foreign inventors. If someone trades in Euros, Pounds, or another currency, a devalued USD may make the commodity more attractive while a stronger dollar may have the adverse effect.
  • Geopolitical events- As a global metal, geopolitical events can have an effect on the supply of this precious metal. Events can also affect the movement of currencies, changing the relative value of Gold and potentially sending large amounts of traders to or from this commodity.
Gold word cloud.

Gold as a Currency Stabilizer

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.

Gold as a Competitive Commodity

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.

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Gold FAQ

Gold is a commodity subgroup and is one of the world's most traded precious metals. Other popular precious metals include silver, copper and platinum. Gold’s price is quoted per troy ounce (oz t), in US dollars. As such, it is often seen as a currency - XAU or XAU/USD.

The main drivers for the price of gold are the aggregate supply and demand for the numerator (XAU) versus the value of the denominator (USD).

Find out what other factors can shift Gold prices in our "What Moves Gold's Price" article.

Among the main factors determining gold prices are:

Geopolitical tensions and uncertainty - Political uncertainty, and/or instability is probably the single most influential factor determining the price of gold. Not knowing what will happen to political, social and economic realities has a psychological effect on day traders who hope to profit from changes in gold and other financial instruments.

Monetary policies of leading economies - particularly US Federal Reserve and People's Bank of China which are the central banks of the world’s two largest economies. Central banks affect global gold markets by purchasing and selling gold bullions in an effort to balance the country’s payments system, and to stabilise their currency’s exchange rate in relation to other foreign currencies (Forex).

Supply and demand - within the commodity markets on which precious metals are traded as futures and on spot markets. Supply and demand of gold correlates to their availability in nature (discoveries) and expected value as an exchangeable commodity.

Follow these steps to trade gold CFDs:

  1. If you don’t already have a Plus500 account, open a Trading Account Here.
  2. Complete registration and deposit funds.
  3. Search for gold under ‘Commodities’ or type ‘Gold’ in the search bar.
    * You can add Gold to your Watchlists, by clicking the Watchlists star in the instrument’s info screen.
  4. View gold’s chart indicators and check for events affecting the price of gold on the Economic Calendar.
  5. Trade gold by opening a position according to the direction you think it will move. You can consider adding stop orders that can help you protect your profits and limit your losses.

Historically, shares and gold are considered opposites. When stock markets rise, the price of gold tends to fall, and vise versa. This has mainly to do with gold’s status as a 'safe haven' (i.e. a financially stable asset) when compared to stocks which are seen as more volatile.
However, when trading gold and shares using leveraged CFDs, the differences between these assets are not so substantial.

Plus500’s leverage ratio for trading gold CFDs is 1:20, meaning with as little as € 100 you can gain the effect of € 2.000 capital. For a list of all our commodities, click here.

The leverage ratio available for shares CFDs is 1:5. For a list of all our shares, click here.

In addition, please note that as a CFD trader you do not actually own the underlying asset, but rather you are trading on the expected changes in its price, in the form of a Buy or Sell position.

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