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The modern day world presents us with an environment which is overly noisy and congested. The international markets are often no different.
However, like in life, if you can take the time to clear you head and focus to understand what traded instruments actual are and what drives them, then you can often see a clearer picture.
This is often how I approach the markets.
Hi my name is James; I would like you to join ME as I look into discovering the markets. Today’s subject, I will be focusing on one of the most traded commodities in the forex market and that is GOLD, with the hope that at the end of this video you will have a more of an understanding of the driving factors behind this yellow metal.
Now, there is an old wall street saying, “Put 10% of your net worth into gold and hope it doesn’t go up”. As when gold flies, it often means things are going wrong elsewhere. However, though this saying really relates to the physical gold market, today we are looking at the GOLD spot market though this principle can also relate to the spot market, the spot market is in many ways very different.
Gold spot is a trading instrument which you can trade practically 24 hours a day on the forex market. Unlike its physical counterpart where you have to purchase gold from a licenced distributor or licenced exchange and make arrangements for receiving and storing it and find either a buyer and seller; with spot you are simply speculating on the price movements, where if you get the direction right you can benefit from both buying and selling it.
Now one of the first things, many market analysts will always say about gold, is that it is a safe haven.
Now a safe haven is an investment that is expected to retain its value or increase its value during times of market uncertainty.
With this in mind, the market often looks towards Gold when there is a lack in confidence in currencies and higher risk assets groups such as indices.
Due to this, the market often tends to monitor the performance of indices (TXT ON SCREEN: S&P500, FTSE, the DAX, DJIA and the NIKKEI), as in the past if they have fallen, you could see GOLD prices rise and vice versa if these instruments have risen in value.
Now though gold is traded against other major currencies, the key relationship has always been with the USD, which can be dated back to the Bretton Woods agreement established in 1944. Though this agreement was ended in 1971, you can often see the love and hate relationship between the two. Over the long term, a declining dollar has often meant a rise in gold prices. In the short term, this is not always true and though there is a special relationship between the USD and gold, gold is a global commodity and the price of the metal can often reflect the global sentiment, that’s why it has often shined for investors during times of both political unrest and conflict.
But there is no doubt USD strength can play a major role in the value of gold so here are some key economic indicators from the US you have to keep in mind.
US Initial Jobless claims
Consumer Price Index
FED Base rate decisions
US Non-Farm Payroll.
Also another fundamental issue to bare in mind, is though we are talking about GOLD CFD’s, Gold is still a physical commodity and prices can be effected by supply and demand, so it’s often a good idea of being aware of the amount of supply coming from exporters of GOLD as well as the demand there is from the major central banks in the world.
So in Final analysis, the key areas you need to be aware of when looking at gold is as follows:
Global economic sentiment
Performance of the stock market.
Global political issues and conflict.
The special relationship with the USD
Key US Economic indicators.
Supply and demand for Gold.
Join me next time as I take a look at some key technical analysis behind GOLD as well as placing a trade. For now, thanks for watching and you trade safe.