The Importance of Gold to Online Trading

Gold has proven its worth to the global economy for centuries now. It's been a staple means of exchange in the history of the human race.

Today, gold is considered a safe haven in online trading because it's the standard of value in the financial market; it has managed to store its purchasing power for thousands of years.

Through this lesson, you'll learn how significant gold is to online trading and how you can use it to effectively trade financial markets like forex and stocks.
 

Lesson Highlights:

• In the financial industry, gold upholds a safe-haven status because of its stable and safe-haven nature.
• The value of gold has an inverse correlation with forex and stocks'. This is mainly because of market sentiment and several economic factors.
• Trading gold on derivatives is an effective strategy to hedge several market risks when trading forex, stocks, and other risky investments.

 

Gold Is Not Like Other Commodities—It Never Lose Its Value

Gold is.... well, golden—especially in the global economy. It's so valuable to the extent that its price never depreciates. This interesting nature of gold makes it a great investment to achieve long-term financial security and hedge economic uncertainties.

Why? Because its value never depreciates.

Compared to other precious metals that would lose value once they picked up imperfections, gold is not like that.

If any of your gold got scratched or dented, you can easily have it melt down and reform to flawless gold again.

This interesting nature of gold makes it an ideal financial security compared to other commodities that would lose.


 

Gold Has an Inverse Correlation to USD and Stocks

There are three things you need to know about the financial market, global economy, and gold:

1. Global and local economies are greatly influential in the movement of foreign exchange (forex) and stock (equity) markets.  
2. Gold is a store of value because of its intrinsic worth. That's why market participants turn to secure their investment by trading gold in times of economic uncertainties. 
3. Central banks worldwide hold gold as their reserve assets to safeguard their economic health.

But now, let's look at gold's interesting relationship with the forex and stock market.
 

Gold and USD

Gold's value is tied to USD's because an ounce of gold is denominated in USD. In other words, when you buy gold, you're quoted to pay in USD.

Enters the relationship between the USD and gold—essentially, when the value of a dollar appreciates, the value of gold depreciates. Meanwhile, a depreciating dollar results in an appreciating gold.

However, this inverse relationship between the two assets is mainly driven by market sentiment and several economic factors.

Moreover, gold is a great investment to hedge currency inflation. Why?

When inflation rises, fiat currencies suffer from the decline of purchasing power. However, in the case of gold, it tends to retain its value or even increase in price.  

 

Gold and Stocks

When economic uncertainties and turmoil hit the financial market, investors often seek safe-haven assets to protect their investments.

With gold's history as a store of value, investors turn to gold when worried about the stability and survival of their stock investments. Again, this is because gold has the ability to remain stable and even increase in value during economic uncertainties.

This flight to safety drives up demand for gold and pushes its price higher.