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Learn about investing in gold prices and how it is affected by equities performance.
Gold price is often negatively correlated to the US equities market and it's considered a safe haven investment when there is uncertainty about other markets. We cover the essentials below.
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XAU/USD (GOLD SPOT/US DOLLAR)
Gold is considered a safe haven investment and traders tend to invest in gold when there is uncertainty in the global markets, pulling out their funds from equities and other instruments at risk to put them in gold. There has been a historical negative correlation in the short term, particularly in the US, whenever a crisis is ahead, gold is considered a defense against inflation which is why you should always keep an eye on this precious metal’s price.
Before online trading became popular you would have to trade physical metals. Then online trading made it easy to trade with the price of gold to hedge your investments, or simply to diversify your portfolio. Trading gold then became as easy as trading a stock or forex in the markets.
A great reason why gold is so important is that it has no influence from monetary policies, central banks or governments, instead, simply influenced by supply and demand.
Spreads for gold are relatively lower than most of the forex pairs with the exceptions of EURUSD, USDJPY and GBPUSD. Also, gold has the most liquidity after these forex pairs, which makes it extremely attractive for short term investors.
Trading gold means you also have to keep an eye on other assets, especially those with direct correlation to the USD and US markets as they have a great influence on the volatility of gold. You can get a sense of the market sentiment just by analysing the price levels of the precious metal.
We hope that the information provided in this article was interesting to you and mostly that you can use this information to improve your trading skills.
We strive to present this information in a way that is easy for you to digest. If you enjoyed this article make sure to visit our resources page to find more information that can help you become a better trader and test those strategies on a trading account.
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