The last year has been a tumultuous time in the stock markets and certain commodities have been extremely volatile as supply and demand have been unpredictable and erratic. When it comes to commodities like gold, as the saying goes, “all that glitters is gold,” however the precious metal has not had the most sparkling year so far. The first quarter of 2021 saw gold on an overall decline, hitting a low at the end of the quarter. As gold has a large impact on the US economy in terms of both standard and price, gold’s performance in the markets can have a significant influence on the US economy and several others. Some investors may use gold as a hedge against other investments in times of economic uncertainty, which can make the gold price a valuable indicator of the health of an economy. People can also invest in the price of gold to counteract the falling US Dollar and declines in the stock market. Basically, gold is one of the most important commodities in the markets, for a variety of reasons, and therefore the price of gold is of particular interest to many people. Let’s take look at how gold came to be such a heavily traded commodity, how it has been performing this year, and what may be next for the precious commodity.
A brief history of gold
Gold’s history dates all the way back to 643 BC when it was first hammered into coins that were used as money. Over the years, the gold standard was developed for countries to tie their currency value to gold, for example Gold vs USD. In fact, after World War II, the gold standard was used to make the US Dollar the de facto world currency, which was later overturned in the 1970s by President Nixon. But in many places around the world, the Gold vs USD mentality is still intact. If we look at the history of gold prices, these can tell us an interesting tale about the glitzy commodity and its influence on other areas, as it began waxing and waning over the last few years. In 2018, gold sat at a price of about $1,279.00 with inflation at 1.9% and the Dollar was getting stronger, which led to an increase in the gold price from 2017. Then in 2019, the gold price hit an even higher level of $1,514.75, largely impacted by the start of the Covid-19 pandemic, with inflation sitting at 2.3%. Then in 2020, the price of gold went even higher to reach $1,887.60, as inflation dropped to 1.4%, the pandemic continued to gain momentum all over the globe, and some investors saw gold as a type of “safe haven” investment during an unstable market.
Note: “safe haven” instruments don’t necessarily imply less risk, rather the term safe haven is used to describe certain instruments like gold that tend to maintain or increase their value in times of economic turmoil.
Gold’s shaky first quarter
This year has been a slightly different story and gold has lost ground from its earlier gains in 2020 by dropping down steadily over the first quarter. Gold started the year at a closing price of 1950.68 on the 5th of January and sank gradually down by 13.9% to land at 1685.05 on the 8th of March. Gold prices increased slightly over March, and then slid back down to 1707.78 on the 31st to close out the first quarter on a low. However, as we entered the second quarter of 2021 gold prices begin to climb again, increasing by 7.5% to close at 1836.63 on the 9th of May. This increase comes largely as a result of lockdown restrictions easing, the demand for gold increasing, and the world looking towards a potential return to normality later in the year. However, it’s important to note that when the Dollar gains strength, gold can lose momentum, as an increase in the currency dampens gold’s appeal as a safe haven investment. The price of gold may also be impacted by the fact that the US central bank has pledged to keep interest rates low until the US economy gets back on track, the recent rises in unemployment, and the current inflation rate of over 2%.
What’s next for gold?
Does the future of gold continue to look bright, or has the precious commodity had its time to shine? As it starts its upward journey, the future of gold is still heavily tied to the world’s recovery from the pandemic as well as investor sentiment around which instruments they consider safe havens. Having said that, those who are looking participate in the commodities market should keep a close eye on the news and current affairs as well as the latest pandemic events and any changes involving Gold vs. USD.
Gold trading with iFOREX as CFDs
As we’ve just discussed, despite its status as a “safe haven” investment, gold prices are still subject to plenty of volatility stemming from a number of causes, from supply and demand to economic turmoil. Such volatility may present both opportunities and risks for those who invest in CFDs or Contracts for Difference. CFDs allow you to take advantage of price changes in both directions—increases as well as decreases—of a number of commodities like gold, without having to purchase the underlying asset (in this case any actual gold). In simpler terms, you’re able to invest in volatility, so if you think the price will go up, you’d open a ‘Buy’ deal or ‘Go long,’ whereas if you think the price will go down, you’d open a ‘Sell’ deal or ‘Go short.’
iFOREX is a market leading broker with over 25 years of experience, offering hundreds of CFD instruments to choose from including commodities like gold, silver, oil and gas, as well as shares of today’s top companies, ETFs, global indices, cryptocurrencies and forex pairs. Gold trading with iFOREX as CFDs gives you access to iFOREX’s innovative trading platform, available for both desktop and mobile, as well as a host of advanced tools and features to help you make more informed trading decisions.
In order to begin gold trading with iFOREX as CFDs with better knowledge, clients can take advantage of iFOREX’s signature educational resources centre, choosing from in-depth trading guides, video tutorials, and 1-on-1 training with a live trading coach.