Introduction to Precious Metals

When most people think of precious metals, Gold is the first to spring to mind, and has been throughout most of human history. Gold is used to manage risk, and serve as a physical safe haven of value during times of financial/political uncertainty. Gold is arguably the most closely-watched and diversely traded precious commodity in the world. Alongside the trading of actual physical gold, futures contract or derivatives based on the value of gold is the simplest way for investors to benefit from price appreciation of the yellow metal.

Factors Influencing Gold Price

A popular method for forecasting gold price is evaluating its’ relation to the US dollar. Gold prices are regularly quoted in US dollars, usually as 'dollars per troy ounce'. This relationship to the US dollar is a closely watched indicator that strongly influences the price of gold. If the US dollar becomes more attractive to investors and starts to appreciate in value, gold prices are usually observed to drop accordingly. In recent years, some investors have seen the US dollar as a safe haven investment and that has correspondingly reduced the appeal of gold. But when the US economy starts to show signs of contraction, we expect Gold will again see an increase in demand and price.

Therefore, it is important to weigh up the impact of any moves in the US dollar or US interest rates when trading gold. For example, if the US central bank, the Federal Reserve, decides to cut interest rates, this would normally weaken the US dollar and lift the price of gold accordingly as investors shift into gold as a hedge against the weaken US dollar.

As with oil, because gold is such a global commodity it also pays to keep a watchful eye out for major economic announcements such as Gross Domestic Product (GDP) and Consumer Price Index (CPI) which are released on a regular basis. Indeed, gold is a one-of-a-kind commodity with multiple investors trading based on multiple views and investment opinions. This enables traders to use gold as a commodity to hedge positions or speculate for profit in ways many other commodities cannot.