As the success of trades depends on the accuracy of your forecasts, you should always know what affects the price of the asset you trade. Let's analyze what can affect the direction of the gold price.
Supply and demand determine the price of any financial instrument. If the supply increases, the price decreases. When demand increases, the price also rises. All the factors mentioned below will affect supply and demand to some extent, defining the price of gold.
Refuge investment
There are several safe assets that serve as a refuge for investors. These assets appreciate in times of uncertainty in the markets, as investors need to hedge their funds. Therefore, they look for reliable instruments that provide security and stable income. Gold is one such asset. Whenever there are economic or political problems, the price of gold goes up. For example, the price of gold soared more than 13% from January to May 2020 due to the uncertainties caused by the Covid-19 pandemic. Still, this doesn't mean gold will depreciate as soon as the market mood is optimistic; Its value will simply be stable.
Industrial needs
Gold is used not only for jewelry, but also for technology and investments. When demand for the metal increases in either industry, its price rises. Therefore, you should know that the demand for jewelry and electronics can fall in times of uncertainty in the market, pulling the price of gold down.
Production
Most of the gold supply comes from mining, so news of gold mine discoveries will push up the price of the asset. Gold can also be supplied by jewelry and recycling technology. Traders should check data reflecting any information on gold mining and recycling.
THE US DOLLAR
As traders prefer to trade CFDs through the XAU/USD pair, the strength of the US dollar will define the direction of the gold price. When the USD decreases, the XAU/USD pair will increase in value and vice versa. It is worth mentioning that the monetary policy of the Federal Reserve also affects the price of gold. When the central bank signals a rise in interest rates, the price of gold falls. When the Federal Reserve is docile and plans to cut the interest rate, the price of gold is expected to rise.
