Understanding the Relationship between Gold Performance and Crises
Gold is one of the markets that traders have access to when spread betting, and it is important to comprehend the role of the precious metal in the economy and what influences its prices. Financial experts consider gold a haven because some characteristics make it a more valuable investment than say, stocks. For one, gold is scarce, meaning that it cannot be multiplied every time its supply increases and for that reason, it attains a very high value. A lot of people use gold to store their wealth, which has proven helpful in times of financial crises.
Current Gold Performance
The increased investment in gold is what triggered its upward price trends, which took a tumble for a while, and have now started rising again. In 2015 gold prices fell 10% but since January 2016, they have spiked over 30% and currently sit at around $1350 an ounce. Precious metal funds were some of the best-performing in the US and Europe. The first half of 2016 has seen gold’s best performance in 36 years.
Recently, various financial and political turmoil have significantly contributed to the increased prices of gold as investors hunger for the precious metal. Brexit is one example of an event that has lifted gold prices. The pending US election is another that is significantly influencing the performance of gold. When gold was doing very well in the 1980s, it was also due to economic uncertainties. One aspect that clearly affects the price of gold is economic crises but why?
Gold has proven advantageous to hold during economic upheaval; hence, the phenomenon of its prices rising when everything else is doing poorly. The “safe haven” nature of gold arises from the fact that the worth of the precious metal on the market is not dependent on the performance or promise to pay from a third party such as a financial institution, bank, auditor or government. For this reason, in addition to being universally traded, gold does very well in preserving wealth. Even when currencies are collapsing, gold provides protection for investments.
Another factor that drives the price of gold is that it acts as a financial insurance. You will find that all the major central banks across the globe have some quantity of gold in their reserves. Gold has been accepted as a currency and for that reason, central banks prefer it for insurance during uncertain economic times. Precious metals are known to retain their purchasing power over the course of history with gold as a currency maintaining a stability that most currencies don’t have. Most investors see it as a way to hedge against inflation.
Spread Betting on Gold
When the economic or political atmosphere does not look promising, investors tend to stay away from the traditional financial and equities instruments and gravitate towards precious metals, consequently enhancing their performances. The inverse correlation that gold shares with the equity and dollar market is one factor that makes it a popular product for spread betting. Because gold is a hedge against inflation, it is used to play a weakness against the dollar. Spread betting is one way that traders get exposure to gold in sterling, which is an advantage in a situation where the dollar value is depreciating. When spread betting gold with a provider like CMC Markets, your winning or losses will be in sterling, so any fluctuations in the dollar will not play a factor in your trading. Some traders also prefer spread betting in gold because it is a 24-hour market, meaning you can trade around the clock.
Spread betting in gold requires an insight into the best trading techniques as well as market trends.