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CFDs and Spread Bets are complex instruments and come with a high risk of losing money rapidly due to leverage. 73.5% of retail investor accounts lose money when trading CFDs and Spread Bets with this provider. You should consider whether you understand how CFDs and Spread Bets work and whether you can afford to take the high risk of losing your money. Please seek independent advice if necessary.
Gold is considered an attractive investment due to its safe haven status. This means that when there are economic uncertainties or market volatility, traders prefer to hedge their positions with gold.
Gold prices move up and down every day, and even within the same trading day. This is also true of the US dollar, another safe-haven investment. While the price of gold is impacted by several factors, movements in the US dollar are one of the major determinants of gold price.
How does the US dollar impact gold price?
Gold is generally considered a hedge against inflation. Therefore, almost every country holds reserves of gold as a safeguard against worst-case scenarios for their economy. On the other hand, the US dollar is also the world’s reserve currency.
However, there has been much volatility in the US dollar throughout 2022. This has driven traders towards the yellow metal. As gold price is expressed in USD, any increase in the currency’s value tends to make gold more expensive and vice versa. Any increase in interest rates by the Federal Reserve provides support to the US dollar, which goes against gold, as it is a non-interest yielding asset. Therefore, the US dollar and gold generally act inversely.
Also, the US dollar index, which measures the greenback against major currencies, has gained around 7.3% over the past three months, while gold has dipped about 8% in the same period. During the worst of the pandemic, this relationship between gold and dollar became very prominent as there was a huge decline in the US dollar’s value, which sent traders to gold, and resulted in the yellow metal hitting a record high.
Gold Outlook
The US Federal Reserve is set to announce its interest rate decision later this month, with the decision expected to significantly impact both gold price and the US dollar.
Are you ready to take advantage of the inverse relationship between the USD and gold?
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Vantage is a global, multi-asset broker offering clients access to a nimble and powerful service for trading CFDs on Forex, Commodities, Indices, Shares.
With more than 10 years of market experience and headquartered in Sydney, Vantage now has over 1,000 staff across more than 30 global offices.
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