Of all the metals, gold is the most prominent metal as an investment option. Investors purchase gold to diversify risk, particularly via futures contract and derivatives.
Gold trading is also prone to speculation and fluctuations similar to other markets. Gold is considered a safe investment option, especially during periods of economic downturn.
Historically, gold has been used as a monetary standard until the dollar became the global reserve currency.
The rate of gold is determined by supply and demand, which includes speculative demand. Again, saving and transfer plays a vital role in influencing its rate.
Decisions taken by Central banks and the IMF also impact gold price. The gold price is linked to interest rates. If interest rates increase, the gold price would fall while if interest rates fall, the gold price would increase.
Hence, the gold price could be connected to central banks through the monetary policy implemented by them with regard to interest rates.
At present, market experts believe gold is an excellent investment in the short-run. There are many causes, including negative interest rates in several nations that have led to a demand for gold.
Negative interest rates decrease the cost of maintaining gold, and fundamentally, it is inflationary. However, the “cost of carry” is the most convincing motive to hold gold.
A high rate of interest and robust currencies are usual restraints on holding gold, which does not provide any yield and tends to decrease in worth if paper currencies are rising.
Apart from the Japanese yen, there are not many currencies that are appreciating and there are fewer nations having high-interest rates that would provide excellent yields. Hence, investors are considering gold as an investment option in the near future.
There are other correlated technical indicators that confirm gold can extend its current returns. The present, ascending movement in gold proved by increases in metals such as silver, platinum, and copper.
The projections for US development continues to be downgraded, the Fed is not expected to increase rates against a background of a weak global economic environment.
Other measures of market performance like a sinking dollar and reduced interest rates indicate an economic scenario that does not merit any policy decision from the Fed.
Therefore, these circumstances along with negative rates globally would ensure gold, gold stocks and ETFs are in the investors radar in the short-term.
If you are interested in a career in Finance, please enroll for a course with the AcademyFT. Read Academy of Financial Trading Reviews and Testimonials on how AcademyFT has helped thousands of students achieve success in financial trading. For more updates on financial market subscribe to YouTube channel at https://www.youtube.com/c/academyftofficial