Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77.99% of retail investor accounts lose money when spread betting or trading CFDs with this provider. You should consider whether you understand how spread bets or CFDs work and whether you can afford to take the high risk of losing your money.
Today, in the first of our weekly commodity market reviews, we are taking a long-term perspective on one of the major markets: gold.
The dominant focus for global markets remains inflation. In order to combat record inflation rates, central banks across the globe have been hiking rates, and they are expected to continue to do so for the next quarter or two.
Historically higher interest rates damage gold prices as they create a greater opportunity cost for not keeping funds in cash, which would otherwise earn interest. So even though gold has traditionally been seen as an inflation hedge, if rates increase sharply then the price can still come under pressure.
The monthly chart below highlights how gold powered higher from the lows at the start of the new millennium. From lows under $300 to highs topping out above $2000. Price action has recently dropped back to the long-term trend line (black line on the chart). When looking at charts where price action moves much more than 100 percent it is often instructive to use logarithmic scales on the Y axis to put the moves into perspective.
On a standard linear axis the recent falls in price action from the all-time highs above $2000 down to $1700 can look quite significant. On the other hand, on the logarithmic chart the moves can be seen as less considerable and appear instead as a “simple” move down to the longer-term trend line.
Will this longer-term positive trend regain control?
A key question is: have further interest rate hikes now been largely priced in?
Over this longer timescale it is possible to see gold slipping a little lower down to this longer-term trend in the next month or two. Over the longer term, however, such relative minor weakness could be seen as an interesting investment opportunity.
Any future moves down to the long-term trend could allow buying interest to gather momentum, as the inflation hedge properties of gold could then increasingly move to outweigh the near-term concerns over higher interest rates.
We are OvalX
OvalX is a powerful, advanced trading platform you can customise to trade your way. With us, you can trade across thousands of instruments, including FX, shares and more. Discover our desktop and mobile platforms and experience a seamless trading experience between devices.
Dolore ea mollit excepteur sint. Esse ut cupidatat excepteur excepteur adipisicing nostrud adipisicing quis dolor adipisicing elit quis commodo.
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Please note that the presented content refers to the Oval group which contains two legal entities: Monecor (London) Limited authorised and regulated by the UK Financial Conduct Authority (FCA) with Financial Services register number 124721. Monecor (Europe) Limited authorised and licensed under the Cyprus Securities and Exchange Commission (‘CySEC’) with license number 096/08.