Safe-haven assets
Gold is recognized as a reliable safe-haven asset, particularly during periods of economic uncertainty or market volatility. When stock markets experience fluctuations or financial stress, many investors gravitate towards gold to safeguard their wealth, which tends to drive its price upwards. Consequently, the performance of gold often exhibits an inverse relationship with that of stocks and other high-risk investments.
The US dollar impact
The relationship between gold prices and the U.S. dollar is typically inverse. A decline in the dollar's value often leads to an increase in gold prices, as gold's value is denominated in dollars. Consequently, a weaker dollar enhances the purchasing power of other currencies, thereby boosting gold demand.
The impact of inflation on gold
Gold is a traditional anti-inflation tool. When the market expects inflation to rise, investors usually buy gold to hedge against inflation risks. Gold prices usually rise as inflation expectations rise.
The relationship between interest rates and gold
Gold prices often move in the opposite direction of interest rates. When interest rates are low, the cost of holding gold decreases and the price of gold tends to increase. On the other hand, when interest rates go up, gold becomes less appealing and investors may shift to interest-bearing assets, resulting in a decrease in the price of gold.
