Trading gold

3 Major Factors Affecting Gold Prices

Though many precious metals are purchased and traded as investments, no metal is more popular in online trading than gold. Gold acts similarly to a currency – in fact, it was used as a currency by cultures all around the world for centuries before being replaced by paper currency. This is why it is traded as a pair with currencies like the US Dollar and Euro. If you want to be a success online gold trader, you need to understand the factors that affect gold prices. Let’s explore three of the most important factors that have an effect on the price of gold:

The US Economy

According to the International Monetary Fund’s 2014 statistics, the United States is the most powerful economy in the world, with a nominal GDP of $17,418,925 trillion US. Therefore it should come as no surprise that economic events in the United States have a significant impact on gold prices. According to the World Gold Council, the United States has the largest gold holdings of any country in the world, with 8,133.5 tonnes. It is also among the countries that purchase the most gold. Should the US economy experience a downturn, you can expect gold prices to drop (and the economies of other countries to slow, too). When the US economy is growing, gold prices usually come up with it.

International Debt Crisis

Nations around the world have racked up serious debts, which make the currencies of those countries risky to invest in. Investors don’t want to take a risk on a currency that is constantly being devalued with inflation and has decreasing relative value. In contrast, gold is a very appealing and stable investment that doesn’t suffer from the same kind of inflationary forces and holds an intrinsic value. If you want to be a successful online gold trader, a strategy of fundamental analysis will involve keeping an eye on the economies of the many nations who may sell off gold reserves to prop up their internal economics.

Fluctuations in Currencies

Though the United States economy is the most significant one to keep an eye on, currencies fluctuations in the Euro, British Pound, Japanese Yen, Canadian dollar, and Australian Dollar also affect gold prices in a huge way. Whenever there are big fluctuations in currency prices, the gold market becomes more volatile because investors start to recognize its value. When the US dollar depreciates in relation to these other major currencies, you can expect gold prices to increase. To be a successful gold trader, you need to keep an eye on these currency fluctuations and know when to pounce.

Gold prices are not static – they duck and weave in relation to many economic factors around the world. Understanding these three major factors will help inform you as you strive to become a successful online gold trader.

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