XAU: The forex designation for gold, from the Latin word for gold – Aurum

An Introduction to the Gold Market

The Gold Market - text

Gold is a precious metal and malleable in nature. Historically, it has been a very valuable metal due to its precious nature and used as a medium of exchange or as currency.

Gold is popularly used in the making of jewellery. What more, gold is also very useful in industrial application. As it is a good conductor, very malleable and highly ductile, it is used in electronics, typically as wiring. Most electronic devices which we use contain elements of gold in their components including mobile phones, televisions, GPS systems, calculators, and computers.

Other notable uses include glassmaking, medical treatments and dentistry. It’s important for you to know that gold is viewed as a safe-haven investment in the face of slowing global economies and recession.

Other precious metals notably silver, platinum and palladium provide alternatives to gold, given the high price of gold. These other metals are able to provide some of the physical properties of gold at a lower price.

The largest gold producing nation in the world is China. Other notable producers are Australia, the US, Russia, South Africa, Canada, Ghana, Indonesia, and Uzbekistan. The largest importing nation of the precious metal is India, with their main use being for jewellery.

In terms of the fundamental factors which affect gold prices, there are a number of things to consider. Gold prices may react differently depending on different economies and this in turn stems from the different uses of gold from different nations and regions of the world.

When looking at gold prices, it is important to look at the dollar. They share an inverse correlation with each other, so if the dollar were to increase in value, gold would likely decrease in value as a result and vice versa.

You may see increases in gold prices in times of recession and at times of economic prosperity. At times of economic recession, there may be an increase in demand for gold as a hedging tool against inflation or against currency devaluation.

However, there may be increases in demand for gold when an economy is experiencing growth as there may be more consumers with the disposable income to purchase luxury goods, notably jewellery. In terms of the movement of gold, it’s used as a means of hedging.

These fundamental factors need to be weighed up in order to paint the best picture for you on how to trade gold.